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The law is an ASP

The maths of ASP are not rocket science but are beyond the Government

It is always good to see the safe return of the Space Shuttle. One cannot fail to be impressed by the team approach and the ability that supports such missions.

But what has space exploration got to do with pension planning? Well, the point I am getting at is that one does not have to be a rocket scientist to get one’s head around the mathematics surrounding alternatively secured pensions (ASP), an important option for those requiring maximum flexibility and who have attained age 75 since A-Day.

It is extremely important that the debate is opened right up and the issue is dealt with once and for all.

It is very difficult for those making legislative decisions being so far removed from the discussions that we as IFAs have with our clients on a daily basis. They simply do not realise how important this particular issue is and the far-reaching impact it has on people’s decisions as to what action they take with regard to pension planning in general. This seems to be at odds with the powers that be who supposedly want to encourage everyone to make adequate provision for retirement.

There is the desire to ensure that adequate pension
provision is made by the majority of individuals so they can be certain that they will not be affected by constant legislative changes.

The recent debacle concer-ning trust legislation is at the forefront of investors’ minds in this regard. The opposite side to the argument concerns the politicians who appear paranoid at the apparent prospects of losing revenue through effective and flexible financial planning.

This is, of course, where the real rocket science comes to the fore and if there really is a genuine understanding of how existing legislation surrounding ASP actually works, the Treasury should be rubbing its hands with glee as there is a huge potential for a new stream of revenue but alas it is unable to grasp this issue.

Let us examine the facts. Under previous legislation, the necessity to buy an annuity at age 75 provided income tax while such payments are being made throughout the annuitant’s lifetime and at death such payments come to an end. There is obviously the possibility of some further taxation through the annuity company’s profits but mortality costs, admin expenses mean these are not likely to amount to a huge sum.

At the time of writing, the Finance Act is awaited but it is safe to assume that the proposals regarding inheritance tax on ASP are likely to be enacted so that the overall fund will at some point bear a substantial amount of tax but that it will be deferred for some time.

Yes, there will be a small minority of plans where negligible or even no income is withdrawn but the tax take will still ultimately be sizeable and likely to be greater than had an annuity been bought. This is in addition to the income tax on the majority of schemes where income is withdrawn,

So, the Government gets the much needed additional revenue to shore up future finances and this is money it has never had in the past so just why is it so keen to try to rescind the legislation concerning ASP?

It is unlike an IFA to be promoting the payment of additional money to the taxman but there is even less desire to see money swelling the coffers of the insurance battalions, which have succeeded in alienating themselves from their customer base, particularly since the imposition of MVAs.

Although the market is suffering some uncertainties at present, there has been sufficient recovery in fund values to be able to offer fair value to policyholders. Even now, this is not happening and some staggering reductions are still taking place on what appears to be a quite arbitrary basis.

Clients want the flexibility and freedoms that ASP provides and fully understand that to be able to pass on 60 per cent of something is better than 100 per cent of nothing which is effectively what they have with an annuity on death, guaranteed periods excepted. It is time for the Government to recognise the facts. Is anyone out there listening?

Nick Conyers is a consultant at Pearson Jones

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