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HMRC internal manual

Inheritance Tax Manual

Pensions: alternatively secured pensions: introduction

Following the changes to the pension scheme rules from 6 April 2006, scheme members were given much greater freedom to decide when and how to take their benefits. Before 6 April 2006, there was a requirement in all cases for a pension scheme member to secure an income for life at age 75 by taking a pension or annuity. From 6 April 2006, although the requirement to annuitize at age 75 remained, an alternative that was provided for members of defined contribution schemes (IHTM17020) at age 75 was to enter an alternatively secured pension (ASP) arrangement. This enabled members to draw down an income each year from their pension fund subject to minimum and maximum amounts.

An ASP has stricter rules than those for unsecured pension funds in general regarding the level of income that can be drawn and the frequency of reviews of the fund value. The purpose of the maximum limit on withdrawals is to minimise the risk of the member’s fund being exhausted before they die. Inevitably, this means that funds will be left over when the member does die. In extreme cases, with minimum withdrawals, a substantial pension fund can be built up that can be passed on to beneficiaries.

Because of this possibility, specific Inheritance Tax charges were introduced in IHTA84/S151A-E which apply depending on the way in which the ASP funds originate and the way they are used. The person liable for tax chargeable on ASP left-over funds is the scheme administrator, and not the deceased scheme member’s personal representatives (IHTM17353).