Life Insurance within Pension

michaels

Using Martin's suggestions on Insurance brokers I can get a life quote for about 30 quid a month.

If I approach my pension company they want the same amount for one third of the cover even though they state that this will then come from my gross salary (higher rate tax payer).

After A day will I be able to go to an independent life broker and so take advantage of competitive life rates and yet still pay the contributions from my gross salary?

Thanks

dunstonh

Not quite sure what you are getting at but from A day, pension term assurance will return to the mainstream and that will qualify for tax relief. You wont need to get this paid from your payslip to get the tax relief. Basic rate will be deducted at source with higher rate deducted on you PAYE coding. Although you canget your employer to pay it if they want to and it is an option with current pension term assurances.

Level term assurance does not have the tax relief options that pension term assurance has so I cannot see any benefit of getting a level term assurance paid through your payslip.

michaels

Ok - I was talking about level term - not sure what the quote I got from my pension company was for - I have never heard of 'pension term assurance' before...

So level term assurance for which I have received good value quotes for will always be payable from net income.

Please could you explain what pension term assurance is, whether it is an alternative to level term assurance and wether the premiums should be similar to those for level term but from A day whether they can be made from gross salary?

Thanks for your help on this and the ISA/Pension questions

oceanblue_3

michaels wrote:

Please could you explain what pension term assurance is, whether it is an alternative to level term assurance and wether the premiums should be similar to those for level term but from A day whether they can be made from gross salary?

Pension Term Assurance is identical to ordinary Term Assurance, except that it is issued subject to Pensions Regulations and, therefore, qualifies for income tax relief at either 22% or 40% depending on the rate of tax you pay.

Nevetheless, it can be assigned for mortgage purposes, and can be written in trust. Changes to the rules in 2001 meant that, in terms of cost, it became as less attractive product, tax relief notwithstanding. However, as dunstonh said, it looks as though it's being rehabilitated under the Finance Act 2004 changes which come into effect next April.

A word of warning, however: whereas ordinary Term Assurance has no eligibility criteria as such, access to a Pension Term Assurance contract may require that you have earned income, for example, so check the details carefully.

dunstonh

Pension term assurance is an old product that still exists today but is less known about because currently, it can only be sold by an investment advisor (IFA, Tied agent or multi-tied) and not a protection only advisor. Used to be a very common product but in 2001 (IIRC) the rules changed from allowing 5% of your income to be used for pension term ssurance contributions to only 5% of your pension contributions allowed (i.e £1000 a year pension contribution would only allow £50 a year pension term assurance contribution). This made it unviable for many providers.

However, from A day, it will be treated as any other pension product so in theory you could go to 100% of income and get tax relief. Currently, it is still only licenced to investment class advisors but there is a consultation going through with the FSA at this time which is expected to allow protection only advisors to be able to do it as well. The providers have already suggested they are working on releasing an updated version with A day to comply with all this.

As to what it is, it is pure life cover, like standard level term assurance but with tax relief on the contributions. It can have waiver of contribution/premium but not critical illness cover built in.

Gross premiums are usually a little more expensive than a level term assurance. This is due to the admin in dealing with the tax relief. However, the net premiums are cheaper than the level term assurance. ie. A level term assurance costing £20pm would cost around £21 gross with pension term assurance but your direct debit would be £16.38 (if higher rate tax payer it would reduce to £11.60 with the difference being handled through the PAYE code like pensions).

I have already compiled my list of clients where we will be rebroking their level term into pension term after next april.


edit: started before oceanblue but finished afterwards due to phone call. Wont bother editing to change duplication in information.

michaels

Another quick question - presumably with pension term asssurance it would not be possibell to have a 'joint life' policy, especially as my spouse is not currently earning?

dunstonh

you cant have a joint one but with the new rules, your spouse can pay upto £3600 a year in pension and/or pension term assurance contributions. So two single life plans are fine.