RPSM09100380 - Technical Pages: Member benefits: Overview: Authorised benefits: What happens at age 75

What happens at age 75

Unlike with the previous tax rules, the post 5 April 2006 legislation does not specifically require benefits to physically come into payment by the member’s 75th birthday, although scheme rules may do this. Under a money purchase arrangement any uncrystallised funds still held immediately before the member reaches age 75 will be treated by the legislation as available to provide that member with an unsecured pension at that time. These funds will then be treated as being available to provide an alternatively secured pension (unless the member is untraceable – see RPSM09103108), whether or not the scheme actually allows pension to be drawn by the member, or pays income of at least the minimum level required (see RPSM09103105).

The legislation limits how benefits can be provided as authorised payments under a registered pension scheme from the point the member reaches age 75. It also restricts the type of benefits that a registered pension scheme can provide on the death of that member (with no lump sum payments, except in certain circumstances from an alternatively secured pension fund when a charity lump sum death benefit may be paid or where the member died before 6 April 2007, a transfer lump sum death benefit). These restrictions apply whether benefits are being provided from the scheme directly or through an annuity contract or insurance policy purchased on the member’s behalf.

This has implications as far as the payment of a tax-free lump sum benefit on the commencement of a member’s benefits, given that a lump sum cannot be treated as a pension commencement lump sum if entitlement to it arises when the member has already reached their 75th birthday.

Lifetime allowance issues

The legislation also ensures that all benefits not drawn or taken by the member’s 75th birthday are crystallised for that individual’s lifetime allowance purposes. With a money purchase arrangement any uncrystallised funds are treated as designated as being available to provide the member with an unsecured pension immediately before the member reaches age 75 - see RPSM09102080. This in turn triggers a lifetime allowance test – (see RPSM11104090) which applies even if the member can’t be traced.

The position is the same as above where dealing with a cash balance arrangement, although uncrystallised funds are defined differently (see RPSM11104100).

With a defined benefits arrangement, the legislation simply tests any scheme pension and lump sum entitlement that has not arisen or been taken at age 75 as if it had been taken at that date (see RPSM11104610). A similar thing occurs with a hybrid arrangement (see RPSM11104650).