Pension Term Assurance – What is it?

Stand-alone Pension Term Assurance (PTA) is term assurance which uses the rules for pension schemes to provide life cover. You do not have to pay any pension contributions and you can just take out life assurance cover. But, following an announcement by the Chancellor in December 2006, you may not get tax relief on the premiums you pay on new stand-alone PTA policies.

Existing PTA policies taken out before the announcement are not affected and will continue to enjoy tax relief on the premiums.

Stand-alone PTA pays out on your death. It will not give you an income in retirement. PTA wont necessarily be called pension term assurance, firms can use their own marketing names for it, so make sure you read the policy documentation to make sure you understand what youre buying.

Tax relief

Given the possible change in the tax rules, stand-alone PTA may no longer have a tax advantage over ordinary term assurance products. So if you are considering PTA, you should look at ordinary term assurance too in deciding which product is cheapest and best meets your needs.

Points to consider – if you are switching to a PTA from a term assurance:

• Make sure you dont lose out by switching. Your current term assurance policy may include cover options which are not offered under the PTA policy you are considering.
• Remember that new PTA policies may not qualify for tax relief on the premium, so might no longer have a tax advantage over ordinary term assurance policies.

Point to consider – if you are switching to a term assurance from a PTA:

Remember that PTA policies in force before the tax changes announced in December 2006 still get tax relief on the premiums. Switching to an ordinary term assurance may mean you lose this advantage.

Remember, if you are switching either way:

Dont cancel your current policy until you are sure you have another policy in place – you could leave yourself uninsured. If your health has deteriorated since taking out your existing policy, this may mean that the premiums for a new policy are more expensive and you might be better off not switching.