She adds that in most cases a free top-up of 20 per cent or more will make it worthwhile to continue with the protected policy, but it is worth bearing in mind that contributions to PTA policies are included in the test against the client’s annual allowance.
Benefits paid under the PTA will be tested against the lifetime allowance and PTA policies are not individually underwritten. The cover is likely to be more expensive for the average life due to the extra costs of administration.
Tait adds: “Individuals who are looking to maximise pension savings should consider whether it would be better off paying for any necessary life cover outside of their pension, particularly if they are high earners and subject to the annual allowance taper. Clients with policies that pay out large lump sums on death may also benefit from a replacement policy as the tax relief received could be cancelled out by the LTA tax charge.
“These issues must, however, be weighed up against any underwriting considerations. Clients with underlying health conditions may find life assurance premiums are considerably more expensive, and in some cases may not be able to obtain replacement cover at all.”
For Jiten Varsani, mortgage and protection adviser at London Money, a PTA policy’s tax relief is no reason to retain an unsuitable policy.
He says: “Where a change in circumstances deems the policy is no longer suitable to the client’s needs, they may have to forgo the tax advantages for more suitable cover. And though tax relief is no reason to retain an unsuitable policy, it does feel like a loss. It should be noted that some providers may allow changes to be made with no further underwriting.”
Additionally, once a PTA policy has lapsed, the policy cannot be restarted later, therefore maintaining the premiums is especially important.
Varsani adds: “The premiums are reflective of basic rate tax. For those paying higher rates, they have to complete a tax return to benefit from the additional respective rate.
“There is no guarantee that the current or future governments will not change the tax benefits currently available. Changing to a new policy in the future could mean higher premiums and may not be available on standard terms, or could be declined, if there have been significant changes to the client’s medical history.”
Aamina Zafar is a freelance journalist