The government may not have the option of withdrawing a person's right to hold an alternatively-secured pension as doing so could risk prosecution for religious discrimination.
At the moment, the ASP regulations which came into effect from A-Day allow people to continue into income drawdown past the age of 75 without buying an annuity, although an inheritance tax (IHT) charge will apply to any leftover funds.
And although many people do not wish to buy an annuity when they reach 75, comments made by Ed Balls, economic secretary to the Treasury, in the House of Commons on 4 July, suggested the government regards the ASP as being a limited product only available to those with religious objections to the mortality cross-subsidy aspect of annuitisation, such as the Plymouth Christian Brethren.
He stated: “It was always out intention the rules would apply in the specific and narrow case of individuals with principled religious objections” and he pointed out “This is not a mainstream product and it must not become a tax avoidance measure. We shall not be going down that road.”
But Standard Life says it will be almost impossible for the government to withdraw ASP without being eligible for prosecution on grounds of religious discrimination. If they withdraw it, then they are discriminating against people like the Plymouth Christian Brethren who have objections to annuities.
And if they allow ASP usage based only on religious principles, then they are discriminating against every other religion for not allowing them access to the same products because of their faith.
As pensions come under benefits of employment, Standard Life officials point out the Employment Equality (Religion or Belief) (Amendment)Regulations 2003 actually refers to discrimination by trustees and managers of occupational pension schemes in the grounds of religion.
Because small self-administered schemes (ssas) and executive personal pensions (Epps) are occupational schemes with trustees, if the schemes offered ASP but only allowed scheme members which are members of say the Plymouth Christian Brethren, then the trustees would be breaking the law.
Andrew Tully, marketing technical manager at Standard Life, says while the regulations don’t specifically cover personal pensions such as self -invested personal pensions (sipps), it would be difficult, if not impossible, for the government to make laws for personal pensions which result in religious discrimination against followers of non-Plymouth Christian Brethren religions.
As a result, he says, the government has to make a decision to either scrap ASP altogether or to keep it open to everyone but with a higher tax charge to make it a less attractive proposition.
Tully says: “ASP is a very niche product as there are very few individuals with sufficient capital and income at age 75 to even consider entering this product. There is no question of ASP being marketed for tax avoidance reasons – any income taken is subject to income tax in exactly the same way as an annuity.”
And there seems to be a lot of support for ASP as a petition started by IFA firm Hargreaves Lansdown on 14 July, has generated a good response with almost 1,800 signatures.
Hargreaves Lansdown says it is currently in correspondence with Balls over the issue, and depending on the outcome, it will close the petition down and send him the results.
But Tom McPhail, head of pensions research, says whatever the government decides to do, they will be seen to have "egg on their face", so the priority is likely to be in deciding how they can minimise the damage.
At the same time though, he agrees with comments from Tully suggesting the government will not be able to unwind ASP, particularly with the upcoming introduction of personal accounts which will be auto-enrolling people regardless of their religious principles.
As the government has now begun to look at the decumulation process of personal accounts, McPhail says the issue will keep coming back, as if it is limited to the Plymouth Christian Brethren other faiths will want to know why they can’t access it, and were the government to scrap it, then there will still be a need for some alternative annuity option for those with religious objections.
In addition, McPhail points out it would be in the best interests of the government to keep ASP as it is, as it will make more money out of it than annuities anyway, not only because of IHT charges but if the fund also owes a pension scheme tax charge then some people could get hit with a 61% levy.
He says: “With ASP, the question of abuse only arises if you actually exercise religious discrimination. I believe the government will keep it in place although they will probably tighten up the tax charges to make it a less attractive option.”
Tully adds: “What we need is an early decision from the government on which route they are going to go down, as providers, advisers and members of the public need clarity and certainty sooner rather than later.”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 7968 4558 or email [email protected]IFAonline
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