ANSWER: The Alternatively Secured Pension (ASP), introduced at 'A' Day - April 6 2006, removed the requirement of annuity purchase at age 75.

Instead individuals (post 75) now have a choice between purchasing an annuity or leaving their funds invested and benefiting from any capital growth, whilst making income withdrawals.

The ASP is similar to the old 'drawdown' product which existed before 'A' Day available up to age 75.

The Inland Revenue decided to introduce the ASP in order to offer an alternative for religious groups who object to the insurance principles upon which annuities are based.

However, the product has proved popular outside of these groups due to the fact that it allows funds to be passed on to future generations – a feature not available with an annuity.

An annuity provides a guaranteed income for life, however long that may be, on a single and/or joint life basis.

Unfortunately, nobody knows exactly how long they will live for, and upon the death of the annuitant/s there may only be limited residual benefits.

Therefore the features of the ASP are especially attractive to those who make succession planning one of their financial priorities and don't wish to be bound by the restrictions of an annuity.

Upon the death of an ASP member any residual fund must be used to provide a dependents pension. A dependent is a spouse or a person who is, physically, mentally or financially dependent on the ASP member.

If no dependents of the member exist, two options are available:

A lump sum payment can be made to charity without incurring a tax charge.

Alternatively a transfer lump sum death benefit can be made to nominated beneficiaries, but only into a pension, ie the benefit must be paid to another pension scheme. The transfer sum is tested against the deceased member's estate for inheritance tax purposes, but does at least allow the fund to be passed on. This is in contrast to what is on offer upon death through annuitisation.

The Government has expressed concern that the ASP is recommended as a method of tax avoidance because the dependent's pension does not fall into an inheritance tax test upon the member's death.

Therefore December's pre-Budget speech stipulated the Chancellor's intention to introduce taxation to ASP death benefits aimed at making ASP less attractive.

Bizarrely, the proposed changes do not directly target the dependent's pension.

ASP members will continue to be able to provide a dependent's pension upon death, without a tax charge.

The transfer lump sum death benefit, however, will be deemed an unauthorised payment, which attracts several charges. Inheritance tax will also still apply so the transfer could end up attracting a charge of up to 80-90%.

The logic behind such a proposal is difficult to see as the Government is already benefiting from transfer lump sum death benefits at the rate of 40% through inheritance tax charges.

Part of the motive behind the proposed changes was the Government's continued commitment to annuities.

With annuities, it is the insurance companies who benefit from the death of the annuitant.

Strangely, Gordon Brown is proposing a change which will benefit insurance companies at the expense of Treasury revenue.

It may be that the Government wishes to maintain demand for annuities as they are linked to gilts, which the Government relies on for its own borrowing. However, it seems unrealistic that the demand for ASP would curb demand for gilts so much that the Government would run into borrowing difficulties.

A lot of industry lobbying will be done between now and this month's Budget speech (March 21), but it seems unlikely that the Government will make a second U-turn despite the fact that the proposed changes do not target the problem it has highlighted with the dependent's pension.

ASP has lasted only eight months before the Government has announced amendments and these constant changes are doing very little to restore faith in private pension provision.

Ironically a move away from state reliance is supposedly one of the Government's key economic objectives.

Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority.