About Annuities

Alternatively Secured Pension

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 to 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.

Income 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 reviewed 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 an ASP not to maximise 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 realise 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 that 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 dependants will be treated as unauthorised payments. The result is that any such payments will be taxed and this could be as high as 82%.