ASPs in the news

caveat_emptor

Milarky wrote:

http://business.timesonline.co.uk/article/0,,16849-2270795,00.html
What is the view on this forum - should ASPs go or stay? What is your prediction - will they be retained more or less freely or will they be scrapped entirely?

Yet another outrage and U turn by the Government which seems to be going round in ever decreasing circles. Would someone explain what the Governments objection to ASP post 75 are? There are limits to the amount of drawdown and the as far as I can make out the proceeds of a drawdown on death post 75 are left to the state unless left to a charity or held in a family SIPP.
This is discrimination which I would have thought the Government is keen to avoid.

Sting_2

margaretclare wrote:

What, exactly, is the objection to annuities - apart from the ones we know about, the inflexibility etc? What is the *religious* objection, I mean?

I thought (please correct me if I am wrong) the 'religous' objection was that it was making money from money (interest) and maybe also to do with where the money was invested. I thought it was the muslim faith who objected to this as under Sharia law, it is forbidden to give or receive interest and to invest in unethical firms.

cheerfulcat

Sting wrote:

I thought (please correct me if I am wrong) the 'religous' objection was that it was making money from money (interest) and maybe also to do with where the money was invested.

No, it seems to be about the insurance aspect; seemingly the Plymouth Brethren disapprove of insurance ( though they will buy it where required by law ). There's more in the Hansard link above.

Nick_C_4

Another Times article, here, describes the Islamic objection to annuities. But Muslims wanting to invest in the first place have to do so in special funds that follow strict investment guidelines, for example, they can't invest in banking, alcohol, gambling, insurance etc.

Nick_C_4

But it isn't open to " any individual ". I think it should be, too, but at the moment it isn't.

So is there pension regulation that specifically prohibits using an ASP unless you have a religious objection to annuities?

Another thing I'm not clear on is why the Government think that ASPs are being used as some kind of tax dodge - if you buy an annuity the only tax that's paid is income tax on the annuity payouts. If you go USP then ASP income tax is payable in the same way on the income, but on death there's a chance that IHT is payable on anything left over, or if the drawdown continues then income tax continues to be paid too. The remaining funds in any case provide an opportunity for more tax to be paid.

blackanchorage

Nick_C wrote:

Another thing I'm not clear on is why the Government think that ASPs are being used as some kind of tax dodge

The government expects you to pay income tax on earnings, AND IHT when you die. ASPs could enable you to avoid the income tax.

Regards, Roger

cheerfulcat

Nick_C wrote:

So is there pension regulation that specifically prohibits using an ASP unless you have a religious objection to annuities?

I don't think that any of this has actually gone through; AFAIK it is still at " consultation " ( yeah, right ) stage. But the plan seems to be that ASPs are only for those with religious objections to annuities, though I have no idea how this is supposed to be policed. It seems like another one of those half-baked plans this lot specialises in.

Nick_C_4

I don't think that any of this has actually gone through

But ASPs were allowed as of 6th April 2006, weren't they? So in the absence of any regulation stopping everyone from using them, they are available to all. The original article posted by Milarky points out that several providers have customers already in ASP.

ASPs could enable you to avoid the income tax.

How do ASPs enable you to avoid income tax? I genuinely don't understand...

EdInvestor

The ASP reduces the amount of income tax the Government can get because it has introduced a new regulation forcing people to reduce the income they receive when they move from a USP ( income drawdown) to an ASP at aged 75.

Under income drawdown you can now take 120% of the annuity rate in income ( thus paying more tax) - or no income at all ( another new rule which means people can indeed avoid income tax).

At 75 the maximum income you can take is 70% of the annuity rate - thus paying less tax than before. IIRC you an also opt to take no income at all.

It appears that the Government is thoroughly confused about its objectives here.

On A-day it also introduced a new regulation that you can only have your fund revalued every 5 years ( instead of three) which means that if your fund has gone up in value you have to wait an extra 2 years to get the higher income it can pay out - and that's 2 years in which the Government doesn't get the tax.

It seems to be focussed entirely on rich people ( who want to minimise income in retirment and leave money to heirs - with the effect they pay less tax) and ordinary people (who want to maximise income in retirement,paying tax on it being a side effect of having money in pensions.)

The result of this is that ordinary people will get penalised, not the rich :mad:

cheerfulcat

The result of this is that ordinary people will get penalised, not the rich

I do wish that we had a government which was less concerned with clobbering the " rich " ( anyone with the foresight to save for their old age ) and more concerned with doing the job right.

It is interesting to note, by the way, that the FSA still thinks that ASPs are available to everyone - more joined-up government.