Alternatively Secured Pension (ASP) – Pensionfinder
Once 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:
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.
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In the event that your maximum income is less than the money you have already withdrawn, you will be unable to place any further money into income drawdown until the following tax year.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.