RPSM09102460 - Technical Pages: Member benefits: An unsecured pension: Review of the unsecured pension limit: When an annuity or scheme pension is provided

Review of the unsecured pension limit when an annuity purchase occurs or a scheme pension is provided

When an annuity is purchased

A review of the unsecured pension limit is triggered where part of the unsecured pension fund is used to purchase a lifetime annuity contract.

The scheme administrator must re-calculate the basis amount on the day the lifetime annuity contract is purchased (immediately after that purchase occurs). This is based on the unsecured pension fund value immediately after the purchase and the individual’s age on that day.

A review is not triggered where a short-term annuity contract is purchased. There is a new review only on the purchase of a lifetime annuity.

Where a scheme pension is provided

The same rules apply where unsecured pension fund is applied to provide a scheme pension. The legislation includes scheme pensions in the ‘annuity purchase’ definition where dealing with the calculation and application of the basis amount.

When the revised calculation applies from

The revised limit does not affect the existing limit in the pension year in which the annuity is purchased. The limit for that pension year remains the same.

The new limit only applies for the next pension year (the first pension year following the annuity purchase). As such, if the annuity purchase occurs just before a formal review is due (so in the last pension year in a reference period) then no review is triggered. Here the purchase is not what the legislation calls a ‘recent annuity purchase’. This is because a review will occur anyhow at the beginning of the next pension year, given that this will be the start of a new five-year reference period.

RPSM09102470 gives an example.