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Alternatively Secured Pension (ASP) – Pensionfinder

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    Alternatively Secured Pension (ASP)

    Alternatively Secured PensionsOnce you reach the age of 75, it is possible to continue drawing an income without having to purchase an annuity. To achieve this, simply allow your pension fund to be placed in an Alternatively Secured Pension (ASP). An ASP is similar in nature to income drawdown though there are a number of restrictions which makes it a slightly less attractive option. Below are a list of what an ASP can and cannot do:

    • Although you are still allowed to make a maximum withdrawal like in income drawdown, this limit is likely to be about 25% less.
    • The minimum income that can be taken from an ASP is approximately half that of income drawdown using the same fund.
    • One of the things an ASP has in common with income drawdown is the fact that income limits which have been set are fixed until the next review is undertaken.
    • An ASP will be reviewed using GAD calculations just like in income drawdown but the main difference is the fact that these reviews will be performed annually rather than every five years.
    • You will be allowed to purchase an annuity with your ASP any time you choose which can be a bonus when you take into account the fact that annuity rates get better as you get older. One issue with an ASP is that you are always considered to be 75 years of age when the fund is under review. This means that annuity rates become even better in comparison to the maximum income allowed by an ASP.

    As an ASP involves investing money into a fund, there is the same risk of your pension fund falling as there is in income drawdown. The death benefits associated with an ASP are also inferior to their income drawdown counterpart. Remember, you cannot benefit from tax-free cash once you turn 75. Therefore, you must utilise your right to tax-free cash before taking out an ASP.

    Phased Retirement

    It is not necessary to use your whole pension fund at the same time. It is possible to use only a certain percentage of it to either purchase an annuity or go into income drawdown. Before explaining the process any further, you need to be made aware that choosing phased retirement is known as a Benefit Crystallisation Event which essentially means your fund will be placed under immediately review. This review could end up altering your maximum income allowed and decreasing the amount of money you are allowed withdraw. This automatic review is considered as an addition to the regular review process.

    In the event that your maximum income is less than the money you have already withdrawn, you will be unable to place any further money into income drawdown until the following tax year. If you do not like the idea of being forced to use all your benefits or else you don’t financially need to, phased retirement is an option for you.

    Death Before Benefits (Brief Explanation)

    If you have money left over in your pension fund that has not be used to purchase an annuity or been placed into drawdown when you die, it is possible to have this money paid to a dependent who will not be charged inheritance tax. Another possibility is that your spouse or partner could purchase an annuity or go into drawdown with the remaining money. If you have a contracted out pension, there will already be a stipulation which requires you to provide them with an income in the form of an annuity or drawdown. You can only give it to a beneficiary if there is no spouse or partner in the picture.

    The current lifetime allowance for pension funds is £1.8 million but it is to reduced to £1.5 million from 6 April 2017. Your pension fund will be valued to ensure it does not exceed this level. In the event that the fund plus death benefits and pension life insurance go beyond the allowable level, the excess amount will be taxed at 55%. If your fund is used to provide cash for a dependent, this tax charge should be waived.