Instead of buying an annuity by the age of 75 there is an option, and it goes by the name of an alternatively-secured pension (ASP). Retirees can move into an ASP from income drawdown (now called unsecured pension) when they reach age 75 as a way of remaining invested in the stockmarket and taking an income from their pension fund.
An ASP might suit those who still want to keep their pension funds in the stockmarket, but the main benefit is likely to be for those retirees who want to pass their pension money to their heirs on death, by avoiding buying a pension annuity. Now, while ASP’s can be used to pass pension fund money to heirs, the tax charges are very punitive at up to 82%, and there is also an obvious risk in remaining invested in the stockmarket at this age.
A scheme pension is typically used in occupational pension schemes such as final-salary arrangements. But some insurers have recently set up such plans, aimed at families or the small business, that also allow scheme pensions where an actuary for the pension arrangement calculates the amount of income to be paid out to the retiree each year. These scheme pensions can pay out a higher income than a pension annuity or ASP, even considering good annuity rates, which is calculated using government actuary (GAD) figures. Scheme pensions can also be used to pass pension monies to heirs, by buying a 10-year guarantee on the income taken, which can be paid out to beneficiaries after the scheme member dies. However, these can be very expensive to set up, with initial charges of typically more than £1,000, with hundreds of pounds being paid in annual fees, making it quite a niche product.
So, if you are heading towards age 75, looking at annuity quotes for the best annuity rates, which should be good at that age, but you are unsure of the position regarding your death and passing money to your heirs, maybe an ASP is worthy of consideration.
