New figures released under the Freedom of Information Act challenge some of the assumptions held about alternatively secured pensions.
The figures, revealed after an FoI request by AJ Bell, show that rather than being the preserve of the wealthy, around 40 per cent of the 2,400 or so people who have moved into Asps at age 75 had a fund value of less than £100,000.
Asps were originally clumsily inserted into pension legislation by this Government as a way of appeasing a religious minority, the Plymouth Brethren, who objected to the pooling of mortality risk in annuities.
Realising that, legally, the Government was on very shaky ground in limiting such pension flexibilities to one religious minority, the industry began marketing and planning products around these new freedoms.
Cue a last-minute U-turn from the Government in the form of a punitive 82 per cent tax hit on death benefits.
The Government understandably wants to ensure tax relief offered to individuals to encourage them to provide for their own retirement are used for that purpose and are not allowed to be passed down the generations. By the time an individual reaches retirement, the Government estimates it is possible that over half their pension fund, and sometimes up to 70 per cent, is made up of Government tax relief.
The Government must also guard against individuals exhausting their pension pots prematurely and falling back on to the state.
AJ Bell is now lobbying for a fairer death benefit tax charge of 55 per cent that takes account of the tax reliefs given to the individual.
It argues that the current draconian rules are distorting behaviour by driving individuals towards overseas pension transfers, which it says is shown by the low percentage of large pension pots in Asps. It is reasonable to suggest that reform in this area could well increase the Government tax take. Greater flexibilities may also encourage more people into pension saving.
Legislation could be introduced to ensure a certain amount of the pot is ringfenced, or annuitised, so the individual would not become a burden of the state.
Such a move is unlikely to happen under this Government, which seems to be particularly blinkered around annuity reform.
But if the Conservatives are elected, a review of the current annuitisation rules should be a priority, alongside their review of the Government’s pension reforms.