Alternatively secured pension which is also sometimes referred to as alternatively secured income is the name given to taking your pension benefits without buying an annuity for people over age 75. In most contexts this means an income drawdown contract, and in fact many providers will refer to their income drawdown for the over 75s as an alternatively secured pension.

For most people their alternatively secured pension contract will be a continuation of their previous unsecured pension. However some companies who have offered income drawdown contracts in the past will not put in place a mechanism to change it to an alternatively secured pension. The most well know is perhaps Equitable Life. So people with an existing Equitable Life income drawdown contract will need to find a new provider to take their funds. However, anyone with an old style income drawdown contract should review their choice of provider since many of the newer contracts are cheaper and offer more fund choice.

The other group of people most likely to be searching for a provider for an alternatively secured pension are those who have not taken their benefits from their pension funds.

There are some major differences between unsecured and alternatively secured pension under an income drawdown plan, however the basic workings of the plan are the same, in that you take money from the plan and don't buy an annuity, and have the same investment choices.

Income and alternatively secured pension

One of the main differences between unsecured pension and alternatively secured pension under   income drawdown is the income levels. Under alternatively secured pension:

• the income can be varied between 55% and 90% of limits set by the Government's Actuary Department (GAD)
• this upper limit is approximately 10% less than a single life annuity for a 75 year old
• the minimum income is approximately 45% less than a single life annuity for a 75 year old
• the maximum income is set based on the fund value and GAD rates applicable at outset
• the income is reviewed each every year, and a new maximum set
• the new maximum depends on the value of the fund and then current GAD rates

The restriction on the amount of income is designed to prevent the funds being depleted, and if income is your main concern then it is worth comparing it to an annuity, since an annuity is likely to provide a greater level of income.

Tax-free cash and alternatively secured pension

Tax-free cash must be taken or lost when commencing/or converting to an alternatively secured pension. If you have not taken all your tax-free cash then it generally makes sense to take it, since the tax-free cash is of course paid without the deduction of any tax. Whereas any income from the plan is subject to income tax, and the remaining fund is potentially liable to Inheritance Tax in the event of death.

Death benefits is the other area in which there have significant differences under income drawdown for alternatively secured pension and unsecured pension. See alternatively secured pension - death benefits for more details.

If you have a question about income drawdown or an alternatively secured pension contract then phone us on 0800 011 2713 or contact us online.

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