IPTM7230 - Cluster policies: reporting of gains to policyholders and HMRC

What is a cluster policy?

Some insurers offer a flexible product whereby the sum invested is divided up equally as premium into a cluster of identical life insurance policies, commonly known as a cluster policy. There is more on what constitutes a cluster policy in IPTM7330.

Reporting identical events and gains on cluster policies

Each policy within a cluster is a separate policy. The strict position is that where chargeable events have occurred on the policies that require chargeable event certificates to be provided, a separate certificate must be provided for each policy within the cluster.

However, an insurer may report chargeable events on some or all policies within a cluster to the policyholder and HMRC on a single certificate provided

  • the chargeable events are identical and all occur on the same day
  • previous transactions, such as premiums paid and part surrenders, are identical on each policy, and
  • it is clear from the certificate that chargeable events on a specified number of identical but separate policies are being reported.

Where a single certificate is used to report events on a number of identical policies the total of the chargeable event gains on each policy may be reported on the certificate as a single figure. It would not be necessary to list each gain separately.

Example

Transactions

Suppose there is a cluster of ten identical policies and the history of transactions on the policies before they come to an end is also identical on each policy. Two of the policies are surrendered on the same day each for the same amount. A further three policies are surrendered a few days later, also each for the same amount. The final five policies mature a few months later on the same day, each with the same maturity proceeds.

Certificates

Identical events on identical policies may be reported together. The reporting requirements would be satisfied by the issue of three separate certificates, one for each block of policies with identical transactions, as follows:

  • certificate reporting total gain on the surrender of the first two policies
  • certificate reporting total gain on the surrender of the next three policies
  • certificate reporting total gain on the maturity of the remaining five policies.

However, it would not be permissible to report the five surrenders and associated gains on a single certificate, even if they occur in the same tax year, since the three later surrenders occurred on a different day and are therefore not identical to the two earlier surrenders.