The information below sets out the current position using the rules set out in
the pre-budget report (6th December 2006) and any changes announced in the Budget (21st March 2007). Some are of course subject
to the final Finance Act 2007 and HMRC have also announced further consultation on preventing the inheritance of tax-relieved
savings (i.e. pension monies).
Alternatively Secured Pension, or ASP, is only available from age 75 and is a form
of pension fund withdrawal and is an alternative to buying an annuity. It works on the same principle as Income Withdrawal (also now known as Unsecured Pension or USP) where the fund remains invested and the income is drawn directly from the fund.
There are some key basic rules which apply to this form of pension -
- the maximum income allowed is 90% of the comparable annuity income payable as at age 75
- the minimum income is now to be 55% of the equivalent annuity rate at age 75
- Reviews to set the maximum income limit must be undertaken annually. However a key point to note is that
this remains based upon the annuity rate at age 75, rather than the members actual age.
- Payments may be guaranteed for up to 10 years
On the members death, if there is a guarantee, payments would continue for the remaining period.
If there are dependants then the remaining fund must be used to provide dependant's pension benefits.
No lump sum is payable.
If there are no dependants then a lump sum can become payable. However any such payment would be treated
as an unauthorised scheme payment and subject to tax penalties, the application of which with Inheritance Tax could see an
overall tax charge of upto 82%.
If you have any questions please do of course contact us
Whilst, when first mooted, this option was seen as a panecea for those who did not wish to buy an annuity,
or who wished to leave their pension fund to their beneficiaries, it is likely that it's use will be quite limited as all
of the potential problems with Income Withdrawal remain but exascerbated by advancing age.
The relatively narrow income limits of 55% - 90% of an equivalent annuity at 75, which will not increase
with age, and the penal tax charge on passing monies on make ASP unattractive for all but a highly specific minority.
However as developments continue apace in the income drawdown and annuity markets
alternative solutions are becoming available.
The decision as to which option to take on reaching 75 should not be left to the last minute.
It should also be noted that HMRC are not at all keen to see ASP become a mainstream pension option as
can be gleaned from the following extract from a recent letter they issued -
“The Government is considering all options for ensuring that ASP funds are used only for their intended
purpose of providing pension income for those who have a principled religious objection to the pooling of insurance and mortality
risks. It is not the Government’s intention that ASPs become a mainstream product or become a route
to tax avoidance. The Government will announce any further necessary action in due course.”
Some additional information can be found on our downloads page.
