Bulletin 34, 2006
Round up
1 – the number of life insurance rate changes announced since the last bulletin, this time from Scottish Provident who cut 92% of life cover rates
12 - the number of life insurance providers who pulled their Pension Term Assurance products within days of last week’s budget announcement
48% - the number of incapacity benefit claimants who are still claiming after 4 years
73% - the number of incapacity benefit claimants who are still claiming after 2 years
£197,987 – the average price of a house in the UK, down 0.3% from September
Pension Term Assurance
With at least 100,000 of this type of life insurance policy sold, an estimated 100,000 more thought to be in the pipeline, and millions spent by each life insurance company on development and launch, let us be clear about one thing. The re-introduction of Pension Term Assurance earlier this year was an informed Treasury decision, that the industry did not request. In fact, the industry consulted with both the FSA and Treasury long before A-day to make the following points:
- the potential cost to the Treasury of introducing tax-relief of this kind on life insurance policies could cost up to £250m per year
- the monies spent by consumers will go into life insurance policies to save money, and not be invested in pensions
- not to introduce these new rules unless Treasury understood and was comfortable with the first two points
In our view, to suggest that Treasury has only just ‘become aware’ of its own policy is both concerning and disappointing. The life insurance industry has acted in good faith and has spent millions of pounds developing products for a market which has effectively lasted just eight months. The life insurance industry cannot wait for years before we react to legislation while we wait to see whether or not the Government has made a mistake. In truth, the UK financial services industry adapts quickly and sensibly to change more often than not, which is one if its many strengths.
Life insurance and protection is not based purely on the transaction, there is often underwriting involved and as such there could be as many as 100,000 consumers impacted by last week’s decision. Consumers too applied for this type of life insurance in good faith and it is wrong that they should be penalised for what is essentially an error by the Treasury.
There is a huge protection gap in the UK with all the issues of lack of life insurance provision and consumers need to be encouraged to buy more pensions, savings, life insurance and protection, not just the former at the expense of the latter.
Cover Poll
Four in five IFAs think new rules are required in the areas of payment protection insurance (PPI) sales, according to COVER¹s latest web poll. The majority of respondents to the survey said they believe specific legislation is necessary to combat the problems surrounding PPI sales. Only 20% disagreed.
The result of the survey came on the back of the Financial Services Authority¹s (FSA) latest review of the PPI sector, which revealed that firms selling PPI are still failing to treat their customers fairly. Following visits to 40 firms, the FSA found that a number of companies are still not meeting the regulator¹s guidelines when selling the cover.
Following the Association of British Insurers Protection Committee¹s decision to focus more on income protection, this month¹s survey asks whether you think this will finally be the push the product has needed for so long?
Comments of the week
‘The Government has yet again made an announcement that further undermines confidence in its policy setting. Whilst purporting to encourage individuals to take more responsibility for saving and personal financial security, the constant threat of reversing decisions affecting the beneficial aspects of financial products does little to maintain confidence in the market.’
Fay Goddard,
AIFA
‘The Government is leading advisers to water, saying they can have a drink but then pulling the plug. There are u-turns here, there and everywhere.’
Alan Lakey,
Highclere Financial Services
‘Retrospective action from the Treasury is a continual problem faced by advisers.’
Jock Cassidy
Ashley Law
And back in April this year…
‘The massive new change those of us that speak to customers must cope with in our stride is the re-creation of Pensios Term Assurance (PTA) on 6th April 2006. It could be a Machiavellian masterstroke, but the reason I think it is no more than an unintended consequence of ill thought out bill-drafting is that it’ll cost the Treasury an estimated £250 million a year, most of which will go to subsidise the life insurance policies of higher rate taxpayers. Did the Chancellor really decide that this completely un-lobbied-for cause was one to support? It doesn’t do much to redistribute wealth!’
Tom Baigrie,
LifeSearch
‘There are very sound and well-connected judges who have whispered in my ear that the tax-relief, which is the big attraction for switching to Pension Term Assurance and which may make it the “default” life insurance product, will disappear in the next Budget.’
Peter Le Beau,
Le Beau Visage
Villain of the week
Gordon Brown
We all make mistakes, but there was no need to imply sharp practice when this was clearly an informed error by the Treasury. Let us remember that Pension Term Assurance was regulated as a life insurance product, and not a pension. It has cost the protection industry 10s of millions of pounds and through over hasty action and reaction has further eroded consumer trust in financial services.
Hero of the week
Income Protection Taskforce
Who this week launched a white paper aimed at improving the Income Protection market.
The independent group, which consists of IFAs, providers and re-insurers, has formulated a 9 point plan to develop a life insurance and protection hierarchy that elevates Income Protection to become the most important financial priority.
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