Alternatively Secured Pension (ASP)

Alternatively secured pensions were introduced to help individuals with a religious objection to pooling mortality risk, which prevented them from purchasing a pension annuity on ethical grounds.   

At the age of 75 an individual can transfer from their existing plan pension or income drawdown plan to an ASP.  An ASP allows an individual to withdraw an income from the fund, in a manner similar to an unsecured pension.

The Government was aware ASPs were being used as a vehicle for IHT planning, by avoiding the purchase an annuity at age 75. As a result, from 6 April 2007 new rules introduced apply a low ceiling to the income that may be drawn from an ASP. The low limit was set to discourage people from using an ASP where they have no religious reasons for not purchasing an annuity.  

Death While Taking An Alternatively Secured Pension  

Where funds remain on the death of the member, an ASP must first provide for any financial dependants. Thereafter any surplus can be passed to a charity with no tax liability.   

If no charity is nominated, the benefits can be used to enhance the benefits of other members of the scheme, which may include family members. However, from 6 April 2007 the surplus ASP fund is treated as an unauthorised payment and is therefore subject to a tax charge of up to 70%. Inheritance tax is also chargeable at 40%. (100 - 70% = 30, 30 – 40% = 18 i.e. a tax rate of 82%).  

This high tax rate is an attempt by the Government to deter the use of Alternatively Secured Pensions to transfer retirement benefits to family members, rather than it's intended purpose as an option for those that object to purchasing an annuity due to religious beliefs.