Each month, we ask our industry to answer one big question!
Aston Goodey is head of business development - annuities at Prudential
Pre A-Day ASP strategy was often to minimise income and pass on assets to members of the same scheme, however, the new changes to income limits and unauthorised transfer tax charges will mean this strategy has to be reviewed.
With the removal of 0% GAD and with the minimum now at 55% GAD, we believe the strategy will change to clients taking maximum income in the future, using the gifts out of normal expenditure exemption as an IHT strategy. Maximum income limits have also been increased from 70% to 90% GAD which will help. However this is still a significantly lower starting income than other options in the market.
Billy Mackay is head of marketing at Skandia Life
The nature of ASP and recent government intervention makes it very much a niche financial planning tool, but for clients that fit that niche it can be valuable. If clients are to choose ASP they need to understand and appreciate the risks that go with it.
While the latest proposals surrounding the tax treatment for ASP are still the subject of much debate, it exists today as a viable financial planning option. The at-retirement market is becoming an increasingly active area as clients embrace a wider range of ways to take income from their accumulated pension fund.
Peter Magliocco is associate regional director at The Annuity Bureau
For those who wish to make charitable bequests, ASP is an attractive option. In estate planning terms, it means that charitable donations, otherwise planned to be from the normal estate, could be made from unused pension funds, thus boosting the remaining estate for future generations.
ASP is a potentially workable option where there is a considerable age difference between spouses. A much older spouse could enter into ASP in the knowledge that his/her funds could be passed to a younger widow/widower as a dependant's unsecured pension, which could be available to future generations should the second spouse die before age 75.
Richard Mattison is business development director at The PAL Partnership
There is still a very active role for ASP in retirement planning. ASP only becomes an issue following the death of the second spouse, as the tax charges effectively extinguish the remaining fund - which is no worse than an annuity. There are a couple of planning ideas that can be used with ASP, such as purchasing an annuity with a 10 year guarantee some years into ASP, or using the ASP pension to fund a whole of life plan written in trust. However, the main feature that makes ASP attractive is that legislation may change at some point in the future, reducing tax charges on the death of the second spouse, and allowing the residual fund to be passed to other family members.
John Moret is director of sales and marketing at Suffolk Life
In our view, the changes to ASP are likely to severely limit its ongoing use. The new legislation concerning ASPs has been well documented but there are still areas where advisers may still have some doubts. The tax regime is likely to preclude the use of what had been referred to as the family SIPP. However, advisers should also be aware that it is the recipient of any alternatively secured rights - effectively the lump sum death benefit - who will have to meet the 55% unauthorised payments and unauthorised payments surcharge from his/her own resources, as the fund will remain within the registered scheme. It is also important to note that these changes also apply to those who took out ASPs before 6 April 2007. However, the charges will not be retrospective for those who died prior to this date.
Mike Morrison is pensions strategy manager at Winterthur Life
In my view ASP still has a place in retirement planning. While the tax charge on ASP does not look attractive, the key is that there is not a requirement to buy an annuity at age 75.
It is also important to remember that the tax charges do not take effect until the death of any dependant who has "inherited" an ASP fund. The key must be active financial planning. With a tax charge of perhaps 82% looming in the horizon then surely part of the plan must be to mitigate the amount that will be subject to that charge. This might mean reinvestment in other vehicles which are more tax efficient including, perhaps, making third party pension contributions for children.
Bob Perkins is technical manager at Origen
There is no doubt that the diluted version of ASP is less attractive as a planning tool than it might have been but it is by no means a "dead duck".
The option still allows high net worth individuals to control the flow of taxable income in retirement, retain a fund that can provide income for surviving income dependants and where those dependants are also relevant dependants there would be no IHT liability incurred. This additional flexibility still means that a surviving spouse can be provided for without having to spend the money on an annuity which might be "lost" if the spouse dies first.
Ian Price is divisional director at St. James's Place
ASP still has a role to play in retirement planning. This option is not as attractive as it was pre-budget, but we must not forget it still gives clients the choice of not having to buy an annuity at age 75.
When ASP was first introduced there was a lot of 'hype' surrounding this option.
In reality, only a small minority of individuals were ever likely to use this option.
There are certain individuals for whom ASP still has a potential role:
- Those individuals where there is a large age disparity between partners.
- If individuals still want the flexibility of changing the level of income they take each year for tax planning purposes.
- Those individuals that still feel that even after the 82% tax charge, the 18% left is a more attractive option than 0% from a conventional annuity.
ASP should always be considered along with conventional annuities and drawdown.
Janette Weir is director of IQ Research
The Government's last minute turnaround has frustrated the industry and advisers alike and made ASP all but the preserve of the very HNW.
However, all is not lost. The floodgates have been opened and although the flow is just a trickle at the moment, I am convinced that persistent pressure by the industry will pay off in the long term and take ASP into the mainstream.
The biggest bone of contention is the potential impact on the Exchequer. In return for tax relief, pension money is locked away to ensure feckless pensioners don't spend all their savings and fall back on state provision. But with tax relief going to the top 10% of the population, the policy question is whether this is really hitting the people that matter or simply helping those who have considerable savings anyway.
While this argument will run and run, new hybrid products with guarantees will simply render the Exchequer argument obsolete. It won't be a smooth ride, but ultimately sanity will prevail and ASP will rise like a phoenix from the ashes.
Ian Westwater is at Abbey Wealth Management
Members who have been enjoying the benefits of income withdrawal via unsecured pension (USP) are unlikely to be willing to purchase an annuity when they attain age 75.
Income withdrawal gives members control over their investments and flexibility as to the level of income required, albeit under ASP that flexibility will be reduced by the introduction of a minimum income limit of 55% of the GAD rate. However, the increased maximum income limit of 90% means that there is still sufficient scope to allow members to vary their income levels as their circumstances change.
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