Assess Your ASP

Alternatively Secured Pensions (ASPs) were introduced in April 2006 as an alternative to buying an annuity at age 75. Since then the rules have changed substantially, and there is now a requirement to take a minimum level of income.

The most significant changes cover what happens to the residual fund on the death of a member.

• If there is a financial dependant at the time of the member’s death, the fund must be used to provide income.

• If there is no dependant, the residual fund can be paid to charities nominated by the member.

• Any other payment will be treated as unauthorised and give rise to tax charges of 82%, which means many pension providers will only allow payment to charity.

Despite the changes, there are still a number of planning options.

Firstly, members can exhaust the pension fund as soon as they can. Alternatively, and if the pension is not needed, it can be gifted as a normal gift out of income or invested in assets that attract IHT reliefs (see article on IHT planning earlier in this newsletter).

Furthermore, while income may be subject to 40% tax, the recipient may use it to fund pension contributions that would attract tax relief of a similar amount.

The changes to ASP rules make assessing their appropriateness more tricky, although they may still have the following advantages over annuities.

• Income can be varied subject to lower and upper limits.

• The decision about what type of annuity to buy is not irrevocable.

• A higher income can be achieved than from an annuity.

• Participation in investment markets can continue.

• In many cases, the remaining fund, as opposed to a proportion of an annuity, can be passed on to benefit dependants.

However, there may also be disadvantages that might impact on whether an ASP is appropriate for a particular individual. For example, an ASP involves a continuing investment risk, with the result that income may go down as well as up. Needless, to say careful consideration of the options is always recommended.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.