A-Day: Industry source tells PTA firms to watch out for the pitfalls of tax changes
A financial timebomb could await insurers which give pension term assurance (PTA) customers the chance to convert their policies after A-Day, an industry source has warned.
The words of caution came after three more providers announced plans to launch PTA products - including L&G, which will allow policyholders to revert back to traditional cover.
Insurers will need deep pockets to cover the potential losses from these PTA conversions, according to the source.
He said: "Insurers who offer PTA customers the option to convert are playing a dangerous game as they have to ensure they have large monetary reserves set aside should the tax rules change.
"This could be a massive sum if all policyholders converted back because of a taxation change from the Treasury. It would be more prudent to look at such issues on a case-by-case basis."
L&G is to offer arguably one of the most comprehensive propositions the fledgling PTA market has seen. From 10 April its Tax Efficient Life Insurance plan will be available to customers. As well as offering level or decreasing cover on guaranteed rates with guaranteed insurability options (GIOs) on a single life basis, the insurer is offering waiver of premium at no extra charge.
The firm has joined Standard Life in letting PTA customers change back to a traditional term assurance policy with no underwriting, should their circumstances change.
BUPA Individual Protection is the latest provider to announce its plans for a PTA product ahead of A-Day.
Its Term Assurance with Tax Relief product will offer cover on a single life basis for death or terminal illness and GIOs.
Policyholders will have the option of increasing or decreasing cover with guaranteed rates.
BUPA's product also offers policyholders access to the BUPA helpline and the provider's Best Doctors service, something Steve Casey, product manager at BUPA Individual Protection, believes will make their offering stand out.
"Our unique selling point really is the fact that our PTA policyholders will have access to our Best Doctors service. Other than that we are keen to see what happens after A-Day and respond accordingly," he said.
Edinburgh-based insurer Bright Grey has also unveiled a PTA product that is almost identical to the BUPA product - to the extent that they share the same name and provisional launch date.
"We intend to launch in early May, so we'll have an opportunity to see how prices are pitched because almost certainly the early price will not be the one the market eventually settles at," said Roger Edwards, products director at Bright Grey.
BUPA and Bright Grey have yet to announce whether they will allow PTA conversion.
