Over 40% of advisers thinks ASP will stay as it is

Over 40% of advisers think the Treasury will leave Alternatively Secured Pension as it is.

The results of an IFAonline poll, which received over 100 responses, comes at the same time as the Financial Services Authority (FSA) issued new guidance to say advisers are not required to ask about a client’s religious background when advising on ASP.

But although it says suitability rules do not mean advisers have to ask about religion, they should “in appropriate cases - warn the client the Government may act to restrict the availability of ASPs and that, if it does, that might adversely affect the client.”

The clarification on previous guidance is published at the same time as only a quarter of advisers believe ASP will be abolished or limited to those with religious objections.

This is despite comments made by Ed Balls, Economic Secretary to the Treasury, claiming the government only meant ASP to be available to those with religious objections to the mortality cross-subsidy aspect of annuities.

ASP was introduced by the government after campaigning by the Plymouth Christian Brethren who claimed it was unfair they had no choice over how they took their retirement income past the age of 75.

As a result, the A-Day rules allowed people to take ASP after the age of 75, although to try and limit abuse of the product for Inheritance Tax planning, the Finance Act 2006 revealed ASP would be subject to full IHT charge of 40% with the possibility of some members being double-taxed up to 61%.

But while 41.3% believe ASP will stay as it is, 33% think the government will introduce higher tax penalties as a further deterrent to use it for IHT planning, with many in the industry suggesting any action on ASP is likely to be contained in the pre-Budget Report.

However, 18.4% of readers are not so optimistic about the future of ASP, believing it will be abolished in yet another government u-turn over the A-Day changes, whereas only 7.3% believe the government will risk religious discrimination claims and formally limit the product just to the Plymouth Christian Brethren.

But Mike Morrison, pensions strategy director at Winterthur Life, says it seems to be pretty much recognised it would be too difficult for the government to link ASP just to the Plymouth Christian Brethren which leaves just three options; either it is left as it is, it is abolished or it is altered.

He says if the industry accepts something is going to be done, most likely in the pre-Budget Report, then it should start trying to work with the Treasury to alter ASP to make it more acceptable.

Morrison adds: “It would be a very retrograde step to go back to compulsory annuitisation, and to take it away would be the worst thing for Asp. But making the charges higher would not be too bad, provided it was sensibly done, the key to this is revision not abolition.”

Lesley-Anne Creffield, principal at advisory firm Morgan Peterson, welcomed the new guidance from the FSA which she says is “obviously essential”, and suggests it may be the first step in the government leaving ASP as it is.

She adds: “This is a welcome relief as I think this facility should be available to each and every person regardless of religion or moral grounds and I believe the Government, following this FSA statement will now allow ASPs with no restrictions.”

And Tom McPhail, head of pensions research at Hargreaves Lansdown, says it is helpful for the FSA to clarify their position, and points out the line the regulator is taking is eminently sensible.

He adds: “There are some interesting IFA views on this topic, but we’re all just making an interpretative judgement on what the Treasury will or will not do next month. Although I don’t think they will scrap it as it will be politically too difficult.”

Instead, he suggests the government may find it simpler just to spoil ASP, and the easiest way would be to move the inheritability option, as this would significantly undermine the appetite of investors.

But he adds: “The most positive and useful thing would be for them to leave it as it is, as the Treasury earns more revenue from ASP than annuities, so they are winning from the present arrangement. What the government should understand is anything they do to interfere with this will be counterproductive and will not go down well with investors.”

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email nyree.stewart@incisivemedia.com