PTA: Widely-backed product likely to prove a disappointment after A-Day, firm says
Pension term assurance (PTA) is unlikely to become the major hit market commentators expect.
According to protection specialist LifeSearch, PTA is a highly complex product that will not be suitable for the majority of customers.
The product has been widely expected to become a popular protection option after A-Day because it will allow individuals to buy term assurance while at the same time enjoying tax relief on their premiums.
However, LifeSearch believes this opportunity should be treated with caution.
It says issues need to be taken into account before switching to PTA, including the fact that the gross premium will cost more than traditional life insurance and that tax relief is not guaranteed for the term of the policy.
A change of Chancellor or a review of legislation could see the tax relief loophole eradicated and tax breaks could also be lost if the client changed career, moved abroad or became unemployed, the IFA firm argued.
Moreover, it is still unclear whether policyholders will be eligible to switch back to an ordinary term policy, should there be a change in legislation.
If not, they might have to pay the gross premium, which could be around 20% more than they would have to pay for a regular policy.
Tom Baigrie, managing director of LifeSearch, said: "We believe that the product itself will appeal to some types of higher rate tax paying consumers.
"However, for many the product could be complex and unsuitable and we are concerned that consumers may seek to switch based upon price alone, which could be a false premise."
He added: "In order to treat customers fairly we believe that sellers of pension term assurance post A-Day must explain these issues to their customers before they consider switching.
"This raises the question of non-advised sales. We would question how a non-adviser would be able to ensure that their customers understand the risks before buying or switching to a PTA policy."
Baigrie said he thought there would be a low uptake of the product due to its complexity.
"Given the complexities that surround the issue of switching we do not expect to see any immediate mass re-broking of existing policies," he said.
