RPSM09102510 - Technical Pages: Member benefits: An unsecured pension: Review of the unsecured pension limit: Additional fund designation after full annuitisation

Review of the unsecured pension limit where there is full annuitisation and later designation of uncrystallised funds occurs under the arrangement

If the member uses all the unsecured pension fund to purchase a lifetime annuity contract/ scheme pension then obviously no unsecured pension can be paid, either in the current or later pension years (as there is no unsecured pension fund).

If uncrystallised funds are still held in that arrangement, and these are funds are later designated to provide unsecured pension, i.e. the unsecured pension fund is revived the same pension year/reference period structure as before must be followed.

Example

On 1 January 2008 Hilda designates £140,000 to provide unsecured pension and leaves £100,000 uncrystallised funds in her money purchase arrangement.

The scheme administrator calculates the maximum unsecured pension that can be paid is £12,000 per annum. This limit applies for the first five pension years (the first reference period), running from 1 January 2008. The fifth pension year ends on 31 December 2012, so the first formal review is due on 1 January 2013.

On 1 February 2010, Hilda uses her remaining unsecured pension fund to purchase a lifetime annuity.

On 1 October 2011 Hilda decides to draw benefits from her uncrystallised funds (now worth £110,000). She takes a pension commencement lump sum of £27,500 and designates the remaining £82,500 to be used to provide an unsecured pension again.

The additional fund designation triggers a review of unsecured pension limits. The scheme administrator calculates a new basis amount as at the 1 October 2011 using the GAD tables as appropriate, based on the unsecured pension fund and Hilda’s age at that point. No 60 day window for calculation is permitted.

The calculation of the maximum unsecured pension still needs to be applied to fit within the existing pension year structure. So the designation would occur in the middle of the 1 January to 31 December 2011 pension year, and the reference period would still end on 31 December 2012, with a formal review taking place at the beginning of the next pension year/reference period the day later.

The new maximum unsecured pension is £6,000 per annum. This can be paid in the remaining pension years in the five-year reference period, running from 1 January 2011 to 31 December 2011 and 1 January 2012 to 31 December 2012.

On 1 January 2013 a formal review takes place. The maximum calculated there then applies for the next five pension years (the next reference period), which remain unaltered. The scheme administrator may make the calculation in a 60 day window ending on the 1 January.