According to the OTS the Retail Distribution Review is behind a number of individuals incurring unnecessary tax.
RDR has resulted in adviser fees coming from the amount of the withdrawal – so in order for the policyholder to receive an amount of 5%, a withdrawal of, say, 5.5% would be necessary to cover the fee, resulting in a potential tax charge.
The OTS was told that life insurance providers are encouraged to use segmented policies which are flexible.
However, policyholders still need to understand the difference in tax calculation that would occur on these cases whether they use an adviser or not.
The Association of International Life Offices has published a good practice guidance note, which advises members to use segmented policies and offer customers alternative calculations to help them make informed decisions.
