The Government has effectively killed off Asps by imposing 82 per cent tax charges on death benefits.
It has introduced a high minimum income requirement and imposed an unauthorised payments’ charge of 70 per cent where Asp funds remaining on the death of a member are transferred to pensions funds of other members of the scheme.
There is also a 40 per cent inheritance tax charge on the remaining 30 per cent of the fund, creating a total charge of 82 per cent.
Standard Life head of pensions policy John Lawson believes that this “effectively kills off Asp estate planning”.
Hargreaves Lansdown head of pensions research Tom McPhail has attacked the proposals, which are designed to crack down on clients using Asps to avoid IHT, as “vindictive” and counter-productive. He argues that the combination of restrictions will put many people off using Asps.
Lawson says the new minimum income requirements, set at 65 per cent of the annuity rate, combined with poor investment performance could mean policyholders’ funds dry up quickly, meaning they have to fall back on state benefits.
However, he is encouraged that the Government has at least not killed off the possibility of drawdown after 75.
Lawson says: “The minimum income seems rather high. Not only might people run out of funds but it might also be difficult to offer variable annuities at such a high rate of income.”