RPSM09103010 - Technical Pages: Member benefits: An alternatively secured pension: Payment after age 75
This guidance only covers members who became entitled to an alternatively secured pension before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.
If the member reached age 75 on or after 6 April 2011 then see the guidance at RPSM09103500.
Payment of an alternatively secured pension after age 75 before 6 April 2011 and transition to drawdown pension
| [s165(1), ‘Pension rules 6 and 7’][Paras 11 to 14,Sch 28] |
Once a member reaches the age of 75 a pension may only be provided for the life of that member, either through the purchase or provision of a secured pension or, if benefits are from a money purchase arrangement, as an alternatively secured pension.
An alternatively secured pension is the payment of income withdrawals beyond the member’s 75th birthday. It will be subject to more restrictive rules on the maximum pension that can be paid and a more rigid and frequent review of that limit than unsecured pension. There are also more stringent rules on what benefits can be paid on the death of the member where in receipt of an alternatively secured pension (see RPSM09103170).
Alternatively secured pension fund and fund designation
| [Para 11(1) to (4) (5) to (6), Sch 28][Para 20(2) and 3), Sch 10, FA 2005] |
The funds used to generate an alternatively secured pension for the member are referred to as the alternatively secured pension fund. Unless a secured pension is being provided or the member cannot be traced (see RPSM09103108) all funds held within a money purchase arrangement at the member’s 75th birthday will become alternatively secured pension fund at that point. The effective date of this switch will be the point the member reaches age 75, which is immediately after midnight (00:01 hrs) on their 75th birthday.
There are limited circumstances where the initial entitlement to an alternatively secured pension will arise after the member’s 75th birthday. These circumstances are detailed in RPSM09103100. RPSM09103160 deals with the position on transfers.
Once sums or assets have been 'designated' into a member’s alternatively secured pension fund any capital growth or income is treated as being part of that alternatively secured pension fund. Similarly, where assets are purchased at a later date from such funds those replacement assets also fall as part of the member’s alternatively secured pension fund (as do any future growth or income generated by those assets). Any sums generated by the sale of assets held in those funds also form part of the alternatively secured pension fund. This is because that growth or income and those replacement assets are derived from that alternatively secured pension fund.
Any funds that are subsequently applied to purchase a lifetime annuity contract from an insurance company, or are applied to provide a scheme pension, will cease to be part of the alternatively secured pension fund.
RPSM09103020 gives an example of payment of an alternatively secured pension.
Changes after 6 April 2011
The member is aged 75 or over and receiving an alternatively secured pension. What effect will the new rules have on them?
The member’s current alternatively secured pension year will become known as a drawdown pension year and, where it started after 6 April 2010, it will continue as before. There are some changes to the minimum and maximum pension rules. Look at the following example for full details.
Example
Sarah had been receiving an unsecured pension from a registered pension scheme when she reached her 75th birthday on 1 June 2010. From her 75th birthday Sarah’s unsecured pension fund became an alternatively secured pension fund and the income withdrawn from the fund became alternatively secured pension. Her alternatively secured pension year runs from 1 June 2010 to 31 May 2011. When she became entitled to alternatively secured pension on her 75th birthday her basis amount was £10,000. Up to 5 April 2011 the maximum that Sarah can drawdown is £9,000 (90 per cent of the basis amount) and Sarah has taken income withdrawal amounting to £3,000 from her alternatively secured pension fund.
From 6 April 2011 Sarah’s alternatively secured pension fund becomes a drawdown pension fund. Her drawdown pension year runs to 31 May 2011 and the maximum income drawdown she can take in the year is now 100 per cent of the existing basis amount. So Sarah can take up to £10,000 for the drawdown pension year ending on 31 May 2011. As Sarah has already taken £3,000 as drawdown pension before 5 April 2011 the maximum she can take between 6 April 2011 and 31 May 2011 is £7,000.
Under the pre 6 April 2011 alternatively secured pension rules, Sarah had to take a minimum of 55 per cent of the basis amount in each pension year - £5,500 in Sarah’s case as her basis amount was £10,000. However this requirement for a minimum amount to be drawn ceases to apply from 6 April 2011 so if Sarah decides that she does not want to take any further pension drawdown after 5 April 2011 she can do so with no tax penalty.
| Glossary (RPSM20000000) |
