RULES surrounding alternatively secured pensions (ASPs) have been tightened up by the Chancellor in a bid to stop them being used as a tax avoidance measure.
Gordon Brown has angered the pensions industry by effectively killing off ASPs - currently seen an alternative to being forced to purchase an annuity at the age of 75 - in his Pre-Budget Report yesterday.
ASPs were only launched on 6 April this y
ear as part of a number of measures to simplify pensions. They were specifically for the Plymouth Brethren - a group which objects to annuities on religious grounds - but have become more widely popular.
The key change being made is to increase the taxation of death benefits on ASPs from April next year. At the moment any spouse or other dependant can take an income from the ASP fund and on the death of that dependant the remaining fund can be passed to the pension fund of any other scheme member. This transfer is currently subject to inheritance tax (IHT) of 40 per cent but from April this practice will be treated as an unauthorised payment and a tax charge will be imposed of 70 per cent of the amount transferred. There is a danger of double taxation because the IHT charges on ASPs remain in place.
The Pre-Budget Report stated: "It was never the intention that ASPs would become a mechanism to avoid compulsory annuitisation, or to leave a tax-favoured lump sum that could then be passed on. If the proposals prove unworkable, or there is continued evidence of the use of pensions tax relief to provide capital sums throughout retirement, the government will consider whether to remove access to ASPs altogether."
Neil Lovatt, sales and marketing director at Scottish Friendly, said: "What the government gives with one hand in terms of tax relief it has every intention of taking back with the other, and their preferred method of extraction is a compulsory annuity."
Rachel Vahey, head of pensions development at Aegon UK, added: "The government has taken a sledgehammer to crack a nut. Its aim to stop people using ASPs for possible tax avoidance could have been achieved in other ways rather than taking the extreme action of removing transfer lump sum death benefits. Not only will this dent confidence in pension saving it will stifle innovation in the at-retirement market and make it much harder for the government to achieve its aim of boosting retirement provision."
The full article contains 446 words and appears in The Scotsman newspaper.
