Almost 80% of advisers still plan to recommend Alternatively Secured Pensions to their clients despite the proposed charges put forward in the pre-Budget Report in December.
Research by Skandia shows out of more than 600 advisers 78% would be willing to recommend ASP, although the majority of these, 70%, admit they will only recommend the product to a few appropriate clients, while just 8% will advise all their clients to opt for it.
Before the PBR the government continued to state ASPs were only designed for use by those people with religious objections to the mortality cross-subsidy element of annuities, such as the Plymouth Christian Brethren.
However in a report on the annuities market, published at the same time as the PBR in December, the government announced ASPs would still be available to all, but it added a 70% ‘unauthorised payment’ tax charge on any funds leftover at death which are passed on to beneficiaries.
Together with possible Inheritance Tax (IHT) charges and scheme sanction charges, this means the remaining funds could in some circumstances be hit with an 82% tax charge on transfer lump sum death benefits, which Skandia says is disproportionate to the tax relief pensions receive during the accumulation stage.
It says the government has made it clear its support of annuities is driven, in part, by an aversion to tax-efficient pension funds being inherited by beneficiaries, but while Skandia fully understands this stance it believes the key factor is to agree on an appropriate neutralising tax charge on ASP funds which brings them in line with annuities.
Skandia points out the government needs to keep the potential size of the ASP market in perspective and as a result should listen to industry proposals which are well below the 82% figure, with some parts of the market drawing a consensus on a figure closer to 55%.
It argues the results prove ASP is a niche financial planning situation, but although it is not anticipated to be a mass-market product Skandia says getting the structure of ASPs right can offer a new level of freedom and independence in financial management and a significant incentive to save, as many of the benefits of ASP, such as flexibility and a sense of personal ownership, still remain.
Billy Mackay, head of marketing at Skandia Life, says the research shows financial advisers still see a market for ASPs, although he admits 77% of the advisers questioned said the pre-budget announcement on ASPs had reduced their clients’ confidence in pensions.
He adds; “The Government has an opportunity to turn this sentiment around in the forthcoming budget and we hope it has listened to industry proposals that are realistic and workable.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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