I have seen a number of letters and comments from various operators effectively advising individuals who are approaching 75 that if they elect to go into ASP, their benefits on death will have to be donated to charity.
This is a very simplistic approach and it is questionable as to whether or not it is "treating customers fairly". It is perfectly reasonable for an operator to say that it will not permit benefits to remain in their pension arrangement subsequent to the death of a dependant in ASP because under current legislation this could give rise to an unauthorised payment.
However it must be remembered that the tax charge resulting from death on ASP is not paid until the death of a dependant who must be over the age of 75 and also in ASP. This may be many years ahead, not only for retiring or retired members who have not yet reached 75 themselves but also for those approaching that age with much younger spouses.
It is also important for individuals approaching 75 to appreciate that the tax rules could easily change in years to come (indeed the Conservative Party has already established a Policy Review Committee which has publicly stated that the proposed charge to tax is excessive and historically both they and the Liberal Democrats have publicly denounced enforced annuitisation at age 75).
If an individual feels that going into ASP can only mean payment to charity, he could easily opt for an annuity purchase which will remove future flexibility, whereas going into ASP always leaves open the annuity door at a later date should tax changes not be forthcoming.
It is essential that the full picture and alternatives are given to pensioners to enable them to make a reasoned decision as to how they wish their pension to be paid rather than for operators to make relatively simplistic statements which hide some of the facts and which could lead to an irreversible decision being taken.
Ian Hammond is managing director at Rowanmoor Pensions.
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