HM Revenue & Customs is to change legislation that will ensure consumers do not lose their enhanced protection by buying pension term assurance. Providers have said that the change does not go far enough and the legislation that is to be introduced in the Finance Bill 2006 will only extend to life cover already in force on the 6th April 2006.
At present, people risk losing their enhanced protection by continuing to pay regular premiums to a term assurance plan after A-Day, because they are classed as pensions contributions. Enhanced protection rules will also be broken if a lump sum death payment is paid out after the new pension laws come into force for a stand alone death-in-service plan. The loss of enhanced protection could leave people with a 55% bill on any funds over the lifetime limit.
Our view
Many of these such rules will only affect part of the population. Most people with average sized pension funds will not have too many problems. Learn more about the new Pension Simplification Rules that start tomorrow.