A heaven-sent chance to pass on a pension?

There's a new, flexible retirement scheme, but you may need to be in the 'brethren' to join
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The Independent Online

An unholy row over a major pensions concession made on religious grounds is threatening to jeopardise a key part of the Government's reform of pensions policy, introduced just over five months ago.

Members of all parts of the financial services industry are accusing the Treasury of incompetence, lack of foresight and unfair discrimination in favour of the Plymouth Brethren, a tiny band of Christian fundamentalists.

For their part, officials counter that financial advisers and businesses are "exploiting" tax relief and concessions that were never intended for general consumption. They say they may now have to withdraw the leeway allowed to the Plymouth Brethren.

Stuck in the middle are millions of ordinary people left not knowing what they can - or can't - do with their pension pots. What on earth is going on?

It all started with A-Day on 6 April, heralded by the Government as a new dawn in which the old, over-complicated pensions regime would be swept away.

A package of measures was introduced to make it easier to save for retirement. Among these were changes to the rules on annuities.

An annuity is, in effect, an income for life, which is paid for by swapping the pension pot built up over a working lifetime for a policy from an insurer. In the past, everybody was forced to buy one by the age of 75, and when the policyholder died, the money stayed with the insurer. But under the new rules, an "alternatively secured" pension (ASP) has been introduced.

The special dispensation has come about thanks to the Plymouth Brethren, who objected to insurers and actuaries calculating their date of death; they believe only God can do that.

But ASPs are potentially attractive to many people, and not only those with strong religious beliefs. They allow savers, while drawing a small income, to keep their pension pot invested in the stock market or other assets until they die. Critically, savers can also pass a great chunk of this on to their heirs.

The Brethren were the only religious group to come forward during the consultation period, and ministers have subsequently stated that ASPs are not to be considered mainstream products.

A ministerial statement by Dawn Primarolo, the Paymaster General, written in March 2005, more than a year before A-Day, reads: "[They] were designed to provide an alternative ... for those with religious objections to risk pooling - they were not meant as a vehicle for intergenerational transfers by scheme members generally."

The Government would continue to monitor the situation "to ensure that they are not being used for [tax] avoidance", she stressed.

Fast forward to July this year, and Ed Balls, Economic Secretary to the Treasury, homed in on the same theme in a debate on the Finance Bill: "[The ASP] is not a mainstream product and it must not become a tax-avoidance measure. We shall not go down that road."

The problem is, the now-published Finance Act has plenty on the ASP but makes no mention of the objections held by the Plymouth Brethren. The Treasury says the omission is down to there being "no principled religious beliefs test in law" and, as such, no precedent for citing the objection.

Many financial advisers and providers have taken this as their cue to ignore ministers' warnings and proceed with caution to promote ASPs among the wider public.

So far, nationwide, a small number of pension savers - understood to be no more than a couple of hundred - have been signed up.

The attraction for most is the ability to pass on pension assets to their heirs, even if inheritance tax then has to be paid. "Investors would rather pay 40 per cent [inheritance tax] of something than 100 per cent of nothing," says Tom McPhail of independent financial adviser (IFA) Hargreaves Lansdown.

All those who save towards a pension should be entitled to this flexibility, say financial advisers.

Originally, at least, the Treasury seems to have believed that the ASP was an inferior financial product to a regular annuity. But there are now signs that it acknowledges ASPs bring with them benefits, and that reserving these for a select group amounts to discrimination. Less than six months after it was introduced, the legislation is being reviewed.

The Equality Act 2006 makes it unlawful to discriminate on grounds of religion in the provision of goods or services.

For now, the stand-off continues. Many expect a statement from Chancellor Gordon Brown in his pre-Budget report, likely at the end of November. But it's still unclear what direction he will take.

"This issue is far too important to be left open to hearsay and signals [from the Government] - especially one that claims to have recently simplified pensions," says Steve Bee of insurer Scottish Life. "Somebody has to tell us what the rules are."

IFAs face a particular dilemma. "It's very difficult," says Pat Connolly at JS&P Towry Law. "Do we put our clients into an ASP now, and then they [might] come back to us complaining and saying, 'You acted badly.' Or we don't put them in and then find it was OK to do so, and they say, 'I've lost out'."

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