Alternatively Secured Pensions (ASPs)

In the past, it was compulsory to use your pension savings to buy an annuity no later than the age of 75. On 6 April 2006, an alternative option was introduced by the government, known as Alternatively Secured Pensions (ASPs). This provides an alternative choice if:

• you do not believe an annuity will suit your needs
• you want to keep your pension fund invested under your control
• you believe that better annuity terms may be available at a later date

How Do ASPs Work?

An Alternatively Secured Pension is a form of unsecured pension (income drawdown). Instead of buying an annuity at age 75, you can continue to invest your pension savings and draw an income from your fund within laid down limits. Unlike Unsecured Pensions, there is a minimum income that you must take, which is 55% of what a single life, level annuity would pay to someone aged 75. This amount is calculated by applying the funds available to a table produced by the Government Actuaries Department (GAD). The maximum permitted income is roughly equivalent to 90% of what a single life, level annuity would pay to someone aged 75. These rates apply no matter what age you are.

The income limits are reviewed every year and the amount of income you take within these limits can be changed each year, providing you do not exceed the maximum.

What Happens to an ASP When You Die?

One of the attractions of an ASP is the ability to leave funds to your surviving dependants on your death. Dependants include a spouse, partner or any children you have who are under the age of 23 and in full time education, or any children (of any age) that are financially dependant on you due to physical or mental disability.

The funds may only be paid as an income (rather than a lump sum) in the form of an annuity, an unsecured pension (if the dependant is under the age of 75) or an ASP (if the dependant is over age 75).

If you have no dependants, the remaining funds can be paid as a lump sum death benefit. This will be given tax-free paid to a charity. Any other payments to individuals, or transfers to other pension funds, will be treated as an Unauthorised Payment, and as such will attract a payment charge of 70% on the pension fund and 40% inheritance tax on any remaining funds.