Gov’t still ignoring TEP industry concerns – APMM

“The government is steadfastly refusing to look again at changing the new regime, which is unfairly penalising individual buyers of TEPs. It claims there is no new evidence to support a review, despite the fact that some members have noticed a marked decrease in the number of individuals who buy these products,” she said.

The Finance Act 2013 made traded endowment policies non-qualifying – meaning that investors who wanted to buy policies on the secondary market would be subject to income tax. Previously they were subject only to capital gains tax.

In July 2013, the government said it would consider any evidence that suggested the change would bring an end to the traded endowment market.

The APMM provided HMRC with evidence, outlining the detrimental effect it would have on the 1.1 million policies still in force and those who wanted to sell their polices, however, in May 2014, the government said it did not consider there was a strong enough case for legislative change.

In December, the APMM wrote to David Gauke, financial secretary to the Treasury. In his response, dated 12 January, he said the government had not received any new evidence, “therefore its position remained unchanged”.

However, Ms Kennedy said the letter did not address the issues raised in detail. “One of the main thrusts of HMRC’s argument was that the TEP product was not sufficiently long term; but Foster & Cranfield, the auctioneers, report that in the past six months alone they have sold 19 policies, all of which mature after 2029, seven of them maturing after 2030,” she said.

Last week, the FCA claimed that out of 36 respondents who provided examples of when it, or the FSA, had applied rules retrospectively, 18 responses were about traded life policy investments.

The FCA said in the summary: “The issue most frequently mentioned was the treatment of TLP investments, and in particular the FSA branding them as ‘toxic’ and the consequent fall in their value.

“However, this was a criticism of the FSA’s comments, rather than of the regulatory or supervisory approach to the products.”

Adviser View

Daren O’Brien, financial adviser at London-based Aurora Financial Solutions, said: “It sounds like the government is removing choice at a time when they say they are giving more choice. It is unfair that they are being penalised in this way, especially when the government is adding more choice to pensions and Isas but removing freedoms from existing endowment policy holders will lead to a the closing of a viable market. It seems the government has not thought this through properly.”