Alternatively Secured Pensions are still a useful retirement planning tool, despite the industry's failure to achieve any tax concessions from the Treasury, claims Winterthur Life.
In the Budget Gordon Brown confirmed plans, originally outlined in the Pre-Budget Report in December, to restrict the attractiveness of ASP by insisting on a minimum income level of 55% of a comparable annuity for a 75 year old, with a maximum of 90%, while any transfer of a lump sum death benefit triggers an unauthorised payment charge.
Over the past few months the industry has been lobbying the government continuously for a 'softening' of the proposals, with many hoping for a more 'neutral' tax charge of 55% - instead of up to 70% - but instead Brown simply reduced the minimum income from 65% to 55%.
As a result Winterthur says trying to pass on left-over funds to dependents could attract a range of taxes including an unauthorised payment charge, an unauthorised payment surcharge, a scheme surcharge, and possibly Inheritance Tax (IHT) and scheme deregistration charges, which could total more than 80%.
But Mike Morrison, pensions strategy manager at Winterthur, says in reality it is unlikely this would now happen since the unauthorised charges would fall on the potential beneficiary, making it doubtful any scheme administrator would pay out an unauthorised charge which could jeopardise the status of the scheme.
He says: “It really is a pity HM Treasury has not listened to the industry and developed a way of passing pension assets on after death. However it’s not as bad as it seems as there is now no longer a requirement to buy an annuity at age 75.”
But he points out as a result of the ASP changes, a suitable retirement strategy might now involve planning to minimise funds which could be caught by the “draconian” tax charges.
Morrison says: “This might involve assessing an individual’s income needs and reviewing the option to put any excess into more tax efficient arrangements. An option could be to use other investment vehicles which are taxed at a lower rate or even third party contributions to a spouse’s or children’s pension.”
Although he admits annuities could also form part of the ultimate solution, particularly at older ages when an enhanced rate might be available.
He adds: “A good annuity rate, even with a guarantee, might be the best way of passing on money in the later years. This means an even more active role for the financial adviser.”
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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