RPSM09102330 - Technical Pages: Member benefits: An unsecured pension: Limit on unsecured pensions: The basis amount

This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. If the member became entitled to their pension on or after 6 April 2011 then see the guidance at RPSM09103500.

Calculating the basis amount

GAD tables

[Para 10 and14, Sch 29][Regulations 2 and 3 The Registered Pension Schemes (Relevant Annuities) Regulations 2006 - SI 2006/129] 

The scheme administrator calculates the basis amount by using the tables specifically compiled for this purpose by the Government Actuary’s Department (GAD). These tables together with comprehensive instructions on their use are available from www.hmrc.gov.uk/pensionschemes/gad-tables.htm. In these circumstances the following is a brief outline on how the basis amount is calculated.

These tables are designed to provide a measure of the annual amount of lifetime annuity income an unsecured pension fund can generate for the member at the point of calculation, assuming the annuity

• would provide a level income for the member,
• with no guarantee, and
• no provision for a continuing dependants’ annuity on their death, i.e. it is a single life rather than a joint-life contract.

This is referred to in the legislation as the level of relevant annuity the fund could purchase for the member on that particular date.

The relevant annuity rate obtained via the GAD tables is the basis amount.

The scheme administrator must use the GAD tables to obtain the relevant annuity rate (and hence establish the basis amount). They cannot use any other measure.

GAD provides separate tables for men and women, reflecting the differences in annuity levels that may be obtained on the open market for the different sexes (due to the differences in life expectancy). They also provide a separate table for children, for use where a dependants’ unsecured pension is being paid to a child.

However, following the issue of an EU Gender Directive, from 21 December 2012 the scheme administrator should use the GAD table for men to obtain the relevant annuity rate for women in any of the following circumstances:

• she is aged over 23 with a reference period starting on or after 21 December 2012 (including when the nominated period is before that date),
• she is aged 75 or over with a drawdown pension year starting on or after that date (including when the nominated period is before that date), and
• she is aged over 23 and her basis amount needs recalculating following one of the events described at RPSM09103570 occurring on or after 21 December 2012.

Any questions on the tables should be directed in the first instance to PSS (Nottingham) and not GAD.

When calculating the value of the unsecured pension fund at a particular time any liabilities of the scheme must be taken into account. So the ‘net’ value of any assets held in the fund should be used.

RPSM09102340 gives an example of calculating the basis amount for a woman aged 60. However this example also comments on any differences which should be taken account of when calculating a basis amount for a man or a dependant aged under 23