ASP is a new type of drawdown after the age of 75. For many years the Government and the Revenue resisted pressure to abolish the compulsion to buy annuities at age 75. They argued that pensions are designed to provide income in retirement and they are not be used to allow individuals to pass their pension funds to the family.
Therefore it was a welcome surprise when as part of Pensions Simplification, the Goverment introduced the option to continue with a limited form of drawdown after age 75.
Inome Limits
Alternatively Secured Pension ASP will be paid to an individual from their pension fund in much the same way as for drawdown before age 75. The maximum income will be 90% of relevant annuity (see income limits for drawdown) based on age 75. The minimum income will be 55% of the relevant annuity.
The income limits are reviwed every year. The income can be changed each
year providing it does not execced the maximum.
When the ASP policyholder dies
Most investors will probably consider ASP not to maximum
income, because of the restrictive limits, but to maximise the death benefits for
their family. When the individual dies the remaining fund must be used to provide benefits
for any surviving dependants. This must be in the form of income and there is no
lump sum death benefit for dependants.
It is important to realize that if there is a surviving
spouse or dependant, the ASP fund must be used to provide income. This can be by
way of a lifetime annuity, unsecured pension if they are under the age of 75 or
ASP if over age 75.
It is only if there are no dependants the remaining funds can paid as a charity lump sum death benefit.
Prior to December 2006 it was possible to pay any remaining fund as "A transfer
lump sum death benefit". This gave rise to the concept of family SIPPs whereby the unused pension fund could be
transferred to another family member on the death of the individual. In this way
an individual could have avoided buying an annuity and effectively pass the fund to their
children’s pension fund when they die.
However the transfer lump sum death benefit option was removed in December 2006
Current position for lump sum payments on death after age 75 where there are no dependants
Any payments to individuals who are not depenadnts will be treated as unauthorised
payments. The result is that any such payments will be taxed and this could be as
high as 82%.