Product category:
Protection
News Release from: Standard Life Bank | Subject: Protection
Edited by the Insidemoneytalk Editorial
Team on 22 March 2007
Standard Life view on ASP following
changes announced in the Budget
In today's budget the Government confirmed major changes to Alternatively Secured Pension (ASP) despite the fact that this facility has been in place for less than one year.
These changes are set out in budget note 19 (www.hmrc.gov.uk/budget2007/index.htm) and are effective from 6 April 2007 The pensions tax rules require an individual to secure an income before they reach the age of 75
This article was originally published on Insidemoneytalk on 23 Feb 2007 at 8.00am (UK)
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Most people will buy an annuity at or before 75 but ASP was provided as an alternative, and designed for those who have a principled religious objection to annuitisation.
The major changes: - introduce significant tax charges if, following a member's death, ASP is used to pass pension funds to family.
These tax charges are equivalent to 70% of the fund and, in addition, Inheritance Tax may be chargeable; introduce a requirement to take a minimum income in ASP (currently people in ASP can choose to take no income).
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The new minimum is equivalent to 55% of the annuity that can be bought with the ASP fund - this is lower than the figure suggested in the pre-budget report which was 65%; increase the maximum income in ASP to 90% (it was previously 70%).
The Government said in the pre-budget report that it will also make associated changes to scheme pensions - these are offered through SSAS and Sipps and, following the death of the member, currently pass on any residue free of Inheritance Tax to other members.
HMRC has launched a consultation to prevent ways of inheriting pension savings which confirms the intention to extend the ASP-style charges to scheme pensions - the consultation will explore this area in more detail.
Andrew Tully, Marketing Technical Manager, Standard Life Assurance Limited, said: "It is disappointing that the Government has made these changes, especially the tax charges on ASP death benefits".
"We believe the Government has made the changes based on a perceived problem rather than hard evidence of tax avoidance".
"However Standard Life is pleased that ASP has been retained".
"Drawdown and ASP are useful 'wait and see' options giving people the chance to buy an annuity at the right point in the economic cycle".
"In addition the retention of ASP allows providers to develop new retirement products which provide a guaranteed income for life".
"80% of people in America take their retirement benefits through this type of product which looks like an annuity to the recipient but is actually a drawdown product under the surface".
"Providers allow people to stay invested in equities but by guaranteeing a minimum level of income any risk is passed from the individual to the provider".
"Even if the fund runs dry, the provider will continue to pay the guaranteed income for life.".
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