Treasury to axe Asp for drawdown options
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The Treasury has set out plans to replace alternatively secured pensions with capped and flexible drawdown options from April 2011.
Treasury financial secretary Mark Hoban revealed the proposals last week at the launch of a consultation on removing compulsory annuitisation at age 75.
The plans would allow people who do not want to purchase an annuity to take capped drawdown, the equivalent of an unsecured pension extended beyond 75, for the whole of their retirement.
The Government is also proposing flexible drawdown, where individuals will be able to draw down unlimited amounts from their pension, provided they have secured a minimum income to prevent them from running out of savings and turning to the state.
The Government is consulting until September 10 on what the minimum income should be.
The consultation paper says individuals who are already in Asp will be able to benefit from the new flexibility, contradicting advice given by the Treasury earlier this month which suggested this would not be the case.
Pension benefits drawn down under the new arrangements will continue to be taxed at income tax rates and the tax-free lump sum will continue to be available.
Any unused funds on death will be taxed at 55 per cent if the person is over 75. Death benefits for those who die before 75 without having accessed their pension savings will remain tax-free.
The Government says inheritance tax will not ordinarily apply to unused pension funds remaining after death in addition to the recovery charge but it adds it does not intend pensions to become a vehicle for the accumulation of capital sums for the purpose of inheritance.
It aims to ensure the tax rate on unused funds after death does not leave incentives for pension saving to be used to reduce inheritance tax liabilities. It will monitor this closely and take further action if such activity is evident.
The Treasury estimates that pension and annuity providers will face a one-off cost of £7m to change to the new scheme and ongoing costs of £2m per year.
Your comments
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The Government is moving in the right direction as the current regime for Asp is crazy. It has to make pensions a more attractive option.’
Peter Davies
’This is no kind of simplification that I can see. The age 75 rule should be scrapped, tax charges on unspent funds should be scrapped, the shackle of Government Actuary’s Department rates should be scrapped.’
Julian Stevens
’A step forward. Why not include an option to pass death benefits into your immediate family’s pension arrangements tax-free. The tax recovery (as their surely has to be) would come from the family’s pension arrangements and we may start to deal with the longer-term issue of having sufficient independent means to support ourselves. Any funds withdrawn would be subject to either income tax or the 55 per cent charge on death.’
Andy Dyson
’This is very good news. Releasing some of the constraints of pensions at the business end will encourage people to save properly for retirement in the first place. It is unrealistic to expect tax-free death benefits on unspent funds. These would just become one big inheritance tax loophole.’
Anonymous
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