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A crazy Asp story

There must be a difference between abuse of rules and use of rules

We live in a world where madness and crazy decisions are part of everyday life. Alternatively secured pensions are the latest example of this trait.

The background to Asps is very well documented. The rules changed to introduce the concept of remaining fully invested beyond 75. This is welcomed across the industry as a move in the right direction. The common objection of many to pensions – the need to buy an annuity – becomes a thing of the past.

This is where it has all started to go wrong. Sometimes in the world of pensions, being popular is not good. Some read popularity as the breeding ground of widespread abuse. The answer to possible widespread abuse is often overreaction.

Now here is the thing. There has to be a difference between abuse of rules and use of rules. The fact that the rules said you could do this and many people did does not constitute abuse. I have yet to see any explanation or justification, religion and all, supporting limiting the use of Asps.

It is clear from recent discussions that the religious argument is now centre stage to this dispute. Rightly, advisers are up in arms at the prospect of having to introduce the question of religious preference to the suitability process. The area of religion is full of potential issues and should very rarely affect the question of suitability. Having grown up and lived in the west of Scotland, I can say with certainty that it is a question that will simply not be appreciated in many areas.

We are looking to encourage retirement provision in the UK so why introduce additional problems when there is no justification? The following points are worth considering.

l We should not shy away from things that increase genuine interest in pensions.

l Providers and advisers are asking whether they want to be involved in the madness that is Asps. Rules should be there to be used, not abused.

l The Government is keen to encourage innovation by providers. I think it is fair to say this is something Skandia is renowned for. But it must be remembered that we are running a business.

One of the biggest challenges for providers is allocating what is often precious product development resource. How can you make a call on Asps when you are not sure about the size of the market? If its original purpose is to provide an option for clients with a religious objection to annuity, the size of the potential market is hugely reduced.

l Relaxation around how you fund pensions is a good thing. It makes a great deal of sense to match this with an element of freedom around how you take your money out.

l Embracing these rules will increase the need for advice.

l If loss of tax revenue is a concern, there are ways of ensuring this does not happen which can be achieved without the complexity of introducing a potential charge to inheritance tax. Lots of very bright people provided feedback to HMRC on how to manage this issue. It would have been good to listen.

l Annuities provide an element of certainty of income. It could be suggested that the stance against Asps is more about the Government ensuring that older people have secured income which should reduce the risk of having to rely on the state in later life. Asps introduce a set of additional risks. Again, there are ways of mitigating these types of risks.

Disagreements in the pension world are common, mostly due to competitive pressure. In this instance, it looks like most views are common. Asps can be shaped but, rather than limiting their use, why not make them fit for purpose? Why not embrace the opportunity and work to improve the way people view pensions?

As an industry, we tend to back down when faced with questionable positions like this. It is not often that the majority agree and we have an opportunity to show a common voice. Groups of dissenting voices have sprung up all over the country. The challenge is pulling it all together. We invite industry representatives, advisers and interested parties to send their views to We will consolidate these and report them back to the industry and the relevant Government departments.

Billy Mackay is head of marketing at Skandia Life


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