RPSM09102490 - Technical Pages: Member benefits: An unsecured pension: Review of the unsecured pension limit: Where additional fund designation occurs

Review of the unsecured pension limit: Where additional fund designation occurs

[Para 10(2), (4), (5), (6), (8) and (9),Sch 28]

Where uncrystallised funds held in an arrangement are designated to provide unsecured pension, and there is already an unsecured pension fund held under that arrangement, that additional fund designation is absorbed into the existing unsecured pension fund. This triggers a review of the existing unsecured pension limit for that fund.

The calculation of the new basis amount must take place immediately after the additional fund designation occurs, i.e. on the same day, once the unsecured pension fund has been increased. The 60 day calculation window cannot be used. The review does not alter the existing pension year/reference period structure, or the timing of the next formal five- yearly review at the beginning of the next five-year reference period.

The revised limit on the unsecured pension takes effect immediately. As well as replacing the previous maximum for the remaining pension years in that reference period the revised limit also replaces the existing maximum for the current pension year in which the additional fund designation took place.

Also, unlike the position where dealing with an annuity purchase, a review will still need to be undertaken where additional fund designation occurs in the last pension year in a five- year reference period.

An example of the review following additional fund designation is shown at RPSM09102500.

It is possible that the pension limit does not increase following the designation of additional funds. For example, where the additional fund designation occurs towards the end of a five-year reference period, the value of the sums and assets in the unsecured pension fund may have decreased to such an extent that even with the additional funds, the overall value of the fund has decreased. This is therefore an advice issue that should be considered before an individual makes an additional fund designation.

For the avoidance of doubt, the transfer of unsecured pension fund to another registered pension scheme will never represent an additional fund designation. Such a transfer must in fact go to a fresh arrangement (where no existing uncrystallised funds or unsecured pension funds are already held) – see RPSM09102150. Similarly transfers cannot be made from one arrangement to another arrangement in the same registered pension scheme.