The pension term assurance debacle rattled the industry at the end of last year. But just how badly has it damaged the reputation of the industry and how long will it take to be rectified? Has it caused irreparable damage?
Market viewsAlison Turner-Holmes, Scottish ProvidentLast year saw providers divided in their views over who should be "allowed" to recommend pension term assurance (PTA). The conflicts were well documented. Fears that PTA would be recommended to protect a mortgage were well voiced. And so were fears that Insurance Conduct of Business members would not have "sufficient" pension knowledge and therefore be unable to recommend a PTA that would not have detrimental effects on existing pension arrangements. Fears that tax relief would be withdrawn in the future were also expressed. With all these concerns made so public, why only eight months down the line did Her Majesty's Revenue & Customs (HMRC) withdraw the benefits?
Our industry has been left with egg on its face yet again. The industry's reputation is damaged and the cost will be immense. Costs of product development, literature and IT resources are a huge blow for providers. But for me and Scottish Provident the sympathy and admiration lies with the advisers.
The UK is lucky to have a committed and resilient body of advisers. Huge numbers of regulatory changes inflicted recently on the industry and the cost of practicing professionally increases monthly but we work together and get on with it.
Good advisers help clients and their dependents plan for financial security. Private sector planning relieves public sector spending. For this reason, HMRC should work more closely with us and avoid future U-turns.Alan Lakey, Highclere Financial Services
The concept of pension term assurance may be irrevocably damaged, but the need for protection remains a priority for millions of families.
The credibility of Her Majesty's Revenue & Customs has hit a new low and its message to the public is we do not wish to encourage self-sufficiency or, alternatively, we are hopelessly incompetent. Means-tested benefits versus self-sufficiency, the same conundrum the pensions industry faces.
The encroachment of the nanny-state mentality must take responsibility for the reduction in personal protection, which is bizarre given the increasing attraction of property purchase and large mortgage debt. The Financial Services Authority is currently delving into the increasing numbers of interest-only mortgages and the rationale for interest-only is also one of the drivers for the protection gap - the lowest cost route. At one time it was mandatory for all mortgage borrowers to have relevant life assurance and while personal freedom is to be encouraged, it may be that such a requirement should be re-introduced to ensure a common-sense solution to one of the protection problems.
The industry's reputation has also been affected by the negative press regarding declined critical illness and income protection claims. It highlights how the public and the national press need educating regarding the millions of pounds paid annually on death and ill-health. The positives outweigh the negatives although this is rarely made clear.
Richard Walsh, the ABI
One of the Association of British Insurers' major concerns following the Pre-Budget Report announcement about pension term assurance (PTA) was that it could have wider consequences. How would consumers react? Would it affect their view of life and protection insurance?
The Government discussed its A-Day proposal to introduce tax relief on term life insurance bought by people contributing to a pension many months ago.
It was made fully aware of the implic-ations and told us then that it had no problem with this.
So the indication of a U-turn on allowing tax relief was disappointing at policy level and potentially distressing to those who had already bought PTA or whose applications were in the post or being processed. Had this uncertainty continued for much longer, the reputation of protection insurance could have been badly damaged.
But thanks to the efforts of the insurance industry and the Government's swift action, we should be able to put this episode behind us.
Fay Goddard, Aifa
At the end of last year in his Pre-Budget Report, the Chancellor indicated that tax relief on premiums for stand-alone pension term assurance (PTA) was likely to be removed. This U-turn left thousands of clients with policies in the pipeline in a vulnerable position, not knowing whether their promised tax relief would materialise. And once again, the industry's confidence in the Government's ability to refrain from reversing decisions affecting the beneficial aspects of financial products was dented.
The Association of IFAs together with the Association of British Insurers and life offices, fiercely lobbied ministers, The Treasury and Her Majesty's Revenue & Customs (HMRC) about the practical implications of the announcement and the risks, costs and time associated with addressing the issue. The result so far is that The Treasury has decided that 'pipeline' business will continue to be eligible to receive tax relief if it meets certain conditions.
The high volume of PTA business being written was a surprise for the Government and an unintended consequence of its own tax simplification drive. Financial advisers were just doing their job - acting in the best interests of their clients and taking advantage of the new rules.
The Government's handling of the situation leaves a bitter taste, but the fact that it has listened to the industry's concerns and acted upon some of them, demonstrates that all is not yet lost.
