There has been much debate about ASPs recently, particularly surrounding the inheritance tax treatment and unauthorised payment charges on transfer lump sum death benefits that were announced in the pre-Budget report.
However, research we have done shows that 78% of advisers we questioned still intend to recommend alternatively secured pensions (ASPs) despite these charges. Importantly though, the vast majority (70%) will only recommend them to a few appropriate clients with just 8% saying they will recommend them to all clients.
The research shows that ASP is a niche financial planning situation, only suitable for certain clients with capital and other investments who are in a sensible position to accept and understand the risks that go with ASP. But although it is not anticipated to be a mass-market product, removal of the need to buy an annuity can still offer a new level of freedom and independence that many will view as a possible incentive to save. The government has made it clear that they see pensions as a means of providing secure income in retirement. They will argue that the most appropriate route for this is annuity. This is simply at odds with the views of many consumers.
Gordon Brown confirmed in the Budget that government intends to proceed with the new charges and ASP rules that were proposed in the pre-Budget report. But he has announced a new consultation that will look at the detail of the measures, even if the principles are set in stone.
There is clearly still a market for ASPs in the minds of advisers and the Government has a great opportunity to utilise this to encourage pension savings in the UK. We understand that the Government does not want to see tax efficient pension funds passed on to beneficiaries without an appropriate tax charge but the proposed tax charges remain overly punitive.
Some will argue that we are wasting our time, but we will continue to urge the Government to listen to industry proposals that are more reasonable and ensure it keeps the potential size of the ASP market in perspective.
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