Frequently Asked Questions

What is it?

PTA offers the same basic benefit of life assurance - the sum assured paid if you die within the term, but a tax break made widely accessible from the start of the new tax year in April means significant discounts can be found.

How popular are PTAs?

PTA did exist before April this year but the qualifying rules were stiff and take-up was very limited. It had to be taken out in conjunction with a pension policy, giving PTA its name. The poor take-up meant that insurers were not interested in keeping premiums competitive.

What does it cost?

PTA differs from normal cover in that it allows premiums to be paid from pre-tax , in the same way as pension contributions. The tax relief is reflected in lower premiums compared to normal life assurance, but only up to the basic rate of 22%. If individuals pay a higher level of income tax, and want to pay premiums for PTA from gross income, they need to include this in a tax return to the HM Revenue & Customs. In reality, the discounts from PTA insurers will not match the exact rate of tax paid, because of the higher costs to process PTA compared to equivalent life assurance. Currently, typical savings are about 15% for basic rate tax payers but will increase for higher rate tax payers.

Should I swap my life assurance?

Many will look to swap their existing life cover for cheaper PTA but there are a number of restrictions. Pension term assurance cannot be combined with other types of assurance in the same way that life assurance can.

Unlike life assurance, PTA is not available within the same policy as critical illness cover, income protection or family income benefit. Anyone looking to swap their existing life cover to access the discounts should first consider whether any savings would be swallowed up if they need to replace other protection policies.

Will it cover my mortgage?

PTA can be bought for amounts that decrease over time in the same way as life assurance, so the level of cover can match the size of an outstanding mortgage. Cover can also be index-linked to guard against inflation.

What are the dangers?

It will come as no surprise that tax relief comes with a host of conditions. Most important of these is that the lump sum from a PTA policy will count towards an individual's lifetime allowance for tax-free pension contributions. The current limit is £1.5m.

If your pension pot, added to the lump sum from a PTA policy, is more than £1.5m, the excess will be subject to a 55% tax charge. The bill will be payable by your estate after you die. Anyone worried they will fall into this bracket can look for a PTA policy that pays the death benefit to beneficiaries as income and not a lump sum, reducing the tax charge.

Care should be taken if you already exceed the lifetime limit for pension contributions and have applied for 'enhanced protection' of any money over the limit. In this situation, any premium paid into a PTA policy could invalidate the protection, triggering a tax charge.

What's on offer?

PTA is available from the major life assurance providers. Policies are similar but there are a number of differences. One provider, Liverpool Victoria, will cover two lives on the same policy, but the rest of the market does not offer this benefit.

If a PTA policy becomes unsuitable some insurers give the option to change back to an existing life assurance policy without further questions about medical history or lifestyle.

This could be an important benefit if your personal circumstances change, or if there is a change to the tax status of pension term assurance. Also, some insurers will offer 'waiver of premium', a benefit that ensures premiums are paid if you are unable to work.

How should I make my choice?

PTA is available through Professional Financial Services and as independent financial advisers we can offer the most competitive premium terms to meet your needs.