Since comments by Ed Balls, sidekick to chancellor Gordon Brown, back in July, there has been a lot of speculation about whether or not ASP is limited to people who have certain religious beliefs.
There is no doubt that one of the reasons for the government introducing ASP was the fact that some people have a religious objection from benefiting from the death of others by way of mortality gains on pension annuities.
ASP was introduced by the Finance Act 2004 and, despite further Finance Acts since then, there is nothing in legislation which restricts the use of ASP other than on the basis of age - you cannot use it until you reach age 75.
The Treasury appear to be concerned that ASP will be misused for tax avoidance, however it is difficult to understand this argument bearing in mind that any income that is taken by way of drawdown will be taxed and, as we see in another article in this edition of Pensions News, the funds remaining on death will be chargeable to IHT unless given to charity, or used to provide pensions for relevant dependants.
It is worth remembering that the introduction of income drawdown for pensions back in 1995 sparked similar speculation that it would be misused, but 11 years on the concerns have been proved to be unfounded. It is also difficult to see how the Government could enforce the availability of different pension options based on someone’s religious beliefs, or lack of them. Surely this would be discriminatory.
There is also speculation that the FSA are expecting advisers to take account of a person’s religious beliefs when advising on their pension options, something which the FSA have denied, and again something which could be forcing advisers to adopt discriminatory practices.
All this leads us to the conclusion that ASP is available to all clients when they reach age 75, unless the option is removed for everyone by further legislation. It will still not be suitable for everyone, as is the case for income drawdown in the first place, when looking at pension options. This will still depend on each client’s situation taking account of aspects such as attitude to risk, expected future investment returns, and what other assets they have to provide income.
Ed Balls has said that there will be something in the Pre Budget Statement about this issue. Given the discrimination issues with either scrapping ASP or limiting it based on religious belief it may be that there are changes to the mechanics or taxation of ASP. At the time of writing we are still waiting for a date for the Pre-Budget Statement but it is expected to be early December, we will find out more then.
Any references to tax and legislation is based on Standard Life's understanding of law and HM Revenue & Customs practice at the date of publication. Tax and legislation are liable to change. Tax relief may be altered and the value to the investor depends on their financial circumstances.
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