'INVESTMENT
LIFE AFTER AGE 75'
When
the Government changed the tax rules
for pensions last year, in a less than
successful attempt
to achieve simplification, it removed
the need for pension investors to use
their pension funds to buy an annuity
by no later than the age of 75. However,
this largesse was quickly followed by
the rider that any funds remaining after
the death of the pension holder and
his spouse or civil partner would be
subject to 82% tax.
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This
is likely to cause most people to throw in the
towel and buy an annuity before age 75. But
there are some people for whom there could be
advantage in the alternative of hanging on and
maintaining the pension fund in what is called
an Alternatively Secured Pension (‘ASP’).
The ability to draw income from the fund is
not a major advantage. The maximum income is
capped at a lower rate than that permitted under
pension income drawdown before the age of 75.
However, ASP does enable savers to keep control
of their pension investments and to keep their
options open as to whether or when to annuitise.
Annuity rates do fluctuate and the timing of
annuity purchase can make a big difference to
the level of income received. Also, the investor’s
health might deteriorate, enabling him or her
to obtain the improved rates available under
what are called impaired life annuities. Someone
in their 80s suffering from a serious illness
which reduces their life expectancy to two or
three years could obtain annuity rates of 30%
to 40%.
ASP can also be useful to couples with a significant
age difference. If a 75 year old man were to
purchase a joint life annuity on the lives of
himself and his 50 year old wife, the rate could
be up to 40% lower than if he were to buy an
annuity on his own life alone and leave the
remainder of his pension fund in ASP so that
his wife can buy her own annuity after his eventual
death. No tax is payable on an ASP fund which
is inherited by a spouse or civil partner.
Although not something to pin one’s hopes
on, there is also the possibility that at some
point in the future the rules may be changed
and the 82% tax rate on death, which many consider
to be unjust and unnecessary, may be scrapped.
Hope springs eternal!
Graham Thomas |
