RPSM09102480 - Technical Pages: Member benefits: An unsecured pension: Review of the unsecured pension limit: Review following a pension sharing event

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 where the unsecured pension fund is reduced following a pension sharing event before 6 April 2011 and transition to pension drawdown

[Paras 10(4), (8A) and (9), Sch 28][Para 19, Sch 10, FA 2005] 

Where a member’s unsecured pension fund is reduced following the application of a pension sharing order then a review of the maximum unsecured pension payable in the remaining pension years in that five-year reference period is triggered. This ensures that the maximum income that may be drawn from the fund takes into account the reduction in the unsecured pension fund following the operation of the pension sharing order.

The scheme administrator must re-calculate the basis amount on the day the pension sharing order comes into effect. This is based on the reduced unsecured pension fund value immediately after the pension sharing order comes into effect and the individual’s age on that day.

The revised limit does not affect the existing limit in the pension year the pension sharing event occurs in. The limit for that pension year remains the same. The new limit only kicks in for the next pension year (the first full pension year following the pension sharing order), and any other pension years that are remaining in that five-year reference period.

A review is therefore not triggered where the pension sharing order is put into effect in the last pension year in a five-year reference period. The application of the pension sharing order is not what the legislation calls a ‘recent pension sharing event’.

The rules are similar to those for the review of the limit on the amount of unsecured pension following annuity purchase. So the example in RPSM09102470 may also be useful.

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Changes from 6 April 2011:

The member is receiving an unsecured pension. If their fund is subject to a pension sharing order during their current five year reference period, will this affect the reference period?

No, the member will continue in their current reference period. The pension sharing order will trigger a review of the basis amount calculated by reference to the fund after the pension share has been deducted. But the reference period does not change.

For example if the current reference period is 5 years to 31 March 2014 and the pension sharing order is made on 1 February 2012, then for the pension years ending 31 March 2013 and 2014, the maximum pension is 120 per cent of the revised basis amount. The new rules will apply when the next reference period begins on 1 April 2014.