RPSM09102110 - Technical Pages: Member benefits: An unsecured pension: Overview: Pensions in payment on 5 April 2006

This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.

If the member became entitled to their pension on or after 6 April 2011 then see the guidance at RPSM09103500.

Pensions in payment on 5 April 2006 going forward as an unsecured pension

[The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572]

Any pension being paid to a member aged under 75 on 5 April 2006

• as income withdrawal from a personal pension scheme, or
• direct from the funds of a small self-administered scheme (SSAS) in accordance with paragraphs 20.39 to 20.42 of the IR12(2001) Practice Notes on the Approval of Occupational Pension Schemes and the scheme rules did not require an annuity to be purchased for the individual, or
• direct from the funds SSAS approved under s 590 ICTA 1988 where the scheme rules did not require an annuity to be purchased for the individual, or
• as income drawdown from any retirement benefits scheme (including a SSAS) within the requirements laid out in Appendix XII of the IR12(2001) Practice Notes on the Approval of Occupational Pension Schemes.

from a money purchase arrangement in a scheme that becomes a registered pension scheme on 6 April 2006 became an unsecured pension from 6 April 2006 onwards.

The unsecured pension fund for these benefits in payment on 6 April 2006 will be held in a separate arrangement to any other unsecured pension fund held in respect of the member in the same registered pension scheme.

Transition into the unsecured pension rules on maximum payment and review of those limits

[The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572] 

From 6 April 2006 onwards there is no requirement to draw a minimum level of unsecured pension from such an arrangement. The maximum amount of unsecured pension that can be drawn will continue to be the maximum amount that could have been drawn under the relevant pre 6 April 2006 rules until the maximum amount is reviewed and a new basis amount set. The legislation calls this period in which the existing drawdown maxima apply the ‘first reference period’.

The first reference period runs from 6 April 2006 until the earlier of

• 6 April 2008,
• the day before the day on which the basis amount is recalculated following the purchase of an annuity or scheme pension, and
• the day before the day fixed by the scheme administrator on which to recalculate the basis amount.

So scheme administrators have a period of up to two years after 6 April 2006 in which to recalculate the appropriate basis amount for existing arrangements. The next five yearly reference period will start from this recalculation point.