RPSM09102410 - Technical Pages: Member benefits: An unsecured pension: Review of the unsecured pension limit

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.

Review of the unsecured pension limit

The overall limit on payment of an unsecured pension is the same whether that pension is drawn as income withdrawal, through a short-term annuity contract or a combination of the two. There is also a single process for reviewing this limit over time. The limit does, however, operate in practice somewhat differently depending on the variation of unsecured pension provision the member chooses.

To help ensure the unsecured pension fund can continue to provide an income for life for the member, the maximum income that may be drawn from that fund must be reviewed at least every five years. The maximum will change, depending on investment performance and the income drawn. So if, for example, the fund has performed well, and the pension drawn has been minimal, the maximum will in all likelihood go up. If the fund has performed poorly, and near maximum pension has been drawn, it will in all likelihood go down.

In addition to this basic requirement to review at 5 yearly intervals certain events trigger an additional review.

Where the scheme administrator agrees, the member may request that a review of the maximum amount is carried out before the end of the current five year reference period. If this occurs a new ‘reference period’ will commence from the beginning of the following pension year following the request.

In addition a review is triggered where the fund value is reduced because part of the unsecured pension fund is used to purchase a lifetime annuity, applied to provide a scheme pension, or taken away from the member due to a pension sharing order. In these circumstances there needs to be a reduction in the maximum to reflect the reduced unsecured pension fund.

A review will also be required if the unsecured pension fund is increased by the additional designation of uncrystallised funds still held in the arrangement. In this circumstance the maximum needs to be reset at a higher level to reflect the increased fund size.

How the review works varies for each trigger. Further details on the different types of review can be found at:

• five year formal review of unsecured pension limits - RPSM09102420 to RPSM09102450,
• review made by request of member and with agreement of scheme administrator -RPSM09102520 
• review where an annuity is purchased or a scheme pension provided - RPSM09102460 to RPSM09102470,
• review when the unsecured pension fund is reduced due to pension sharing - RPSM09102480, and
• review when additional fund designation occurs - RPSM09102490.