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This website contains information which may or may not be applicableto your own situation and circumstances.

Any information or advice on this site does not constitute a personal recommendation. If you have any doubts as to whether a product or service is suitable for you, please seek independent advice.

Unsecured Pension (USP)

PENSION OPTIONS SUMMARY

Unsecured Pension (USP) and Alternatively Secured Pension’ (ASP

Option a - Take the Tax Free Cash

Having taken the tax-free cash, there are two possible avenues:

1. Purchase an annuity to provide you with income
2. Place the remaining funds in to a Unsecured Pension (USP)

1. Purchasing an annuity
• There is no investment element
• The income will continue for as long as you live or until the end of the guaranteed period
• At inception you can elect to escalate payment or leave it level
• The income will attract income tax at your highest rate
• Unless you purchase a guaranteed period, the income will die with you
• No risk other than inflation reducing the real return over time

2. Unsecured Pension (previously known as Income Drawdown)

1. The remaining funds are invested and are targeted for growth
2. You can take no income to age 75
3. You can start taking an income at any time
4. Maximum income available is likely to be higher than annuity
5. Once you commence income, the amount will remain fixed for 5 years, at which point the income limits will be reassessed.
6. The income limits depend on the size of the fund and your age at that time, so investment performance is critical and therefore there is greater risk
7. You can purchase an annuity at any time at the rates available at the time of purchase
8. If you die pre 75, the following will apply:
1. The remaining fund can be paid to a financial beneficiary (less a 35% tax charge) or partner
2. You could create a ‘spousal by-pass’ trust if you get married in the future.
3. The remaining fund could pass to your spouse’s pension with no tax charge. On their death, a 40% IHT charge will apply attached to the original transfer.
4. The fund could be paid to a charity with a 35% tax charge applied.
9. Post 75, the pension is known as an ‘Alternatively Secured Pension’ (ASP). If you die after age 75, the following will apply:
1. The fund can be paid in to someone else’s connected and nominated pension fund net of a 40% IHT charge e.g. your child’s. (Connected means a nominated individual with pension fund within the same provider group. Failure to nominate results in loss of total fund)
2. The fund could pass in to your spouse’s pension with no tax. On the second person’s death however, an IHT charge would apply as per the USP above.
3. The fund could pass to a charity with no IHT charge.

If none of the above apply, the fund will be lost to the pension provider.

Option b – DO NOT TAKE THE TAX FREE CASH

To take the tax-free cash, the above position becomes rather complex. If you do not need the lump sum or the income, the best way may in fact be to:

• Leave the pension fund in a pension and not ‘vest’ it i.e. not take the tax-free cash or any income. In this way, if you die before age 75, the pension fund will pay out in full to your beneficiaries without any tax liability (as the rules stand at the moment).
• After age 75, either:
• Take the tax-free cash for yourselves and leave the remaining fund to a charity. In this way, you get the tax-free sum and the charity receives the remainder of the fund tax-free.
• Leave the whole of the fund to a charity, which will receives the whole of the fund tax-free.

Please note that under either option (a) or (b), that at the age of 75 the maximum income that can be taken reduces to 75% of what it was previously. Income therefore drops at age 75 if this is a major concern.