Pension Term Assurance

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Pension Term Assurance was made available from April 2006 and is basically Term Life Assurance with tax relief on premiums.

Pension Term Assurance (PTA) can be either a Level or a Decreasing term life assurance contract which will allow tax relief to be claimed on premiums at the policy holder's highest marginal rate.

The head of retail life and protection for Barclays Insurance says: "If you want to cut the cost of an existing life assurance policy or if you think, like many people, you are under-insured, now is definitely the time to review your cover because there are substantial savings to be made by taking advantage of the new tax laws."

Tax Breaks For Pension Term Assurance

Essentially, it is a life assurance policy but with tax breaks so that you can protect the ones that you love and receive up to 40 per cent tax relief.

This basically means that if you are eligible for this cover then you may benefit from cheaper premiums in comparison to normal Term Assurance.

Gross premiums for PTA are normally slightly higher than traditional Term Life Assurance. This is due to it being a more expensive product for an insurance company to provide, although net premiums after tax relief for PTA are normally lower than traditional Term Life Assurance Trusts.

Demand Set to Soar For Pension Term Assurance

Demand in the PTA market is set to soar, as contribution restrictions are ready to be lifted following "A" day (April 2006).

Until April 2006, only 10 per cent of the pension contribution could be used towards pension term assurance. Now, this limit disappeared, but tax relief will only be given if the total of the pension and term contributions are below the annual allowance (initially £215,000) or 100 per cent of your earnings.

However, if you are not working, you can contribute up to a maximum of £3600 per annum.

These premiums are treated in the same way as pension contributions and are paid net of basic rate tax relief. This is regardless of whether you are employed or self employed.

Both, if eligible, can claim higher rate relief though their annual return.

The sum assured, when added to the value of any pension fund must be below the lifetime allowance in order to be paid tax free.

Most policies are automatically written in trust, and if so, benefits will be paid as per death benefit nomination and all proceeds are outside the deceased's estate.

Also, keep in mind that if the total death benefit for the member exceeds the lifetime allowance of £ 1.5 million, additional tax of up to 55 per cent will be charged.

Those who will benefit from PTA are clients needing life cover but is not suitable for people needing family income benefit, critical illness, income protection or individuals requiring pension income.

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