RPSM09103030 - Technical Pages: Member benefits: An alternatively secured pension: Limit when entitlement first arises

Limit where an entitlement to an alternatively secured pension first arises under an arrangement

[S181A]

The initial maximum alternatively secured pension payable from an arrangement is calculated at the point entitlement to that alternatively secured pension first arises. This will almost always be the same date – the member’s 75th birthday. The occasions where this may not be the case are discussed on RPSM09103100.

The maximum is calculated in broadly the same manner as with unsecured pension limits, with the scheme administrator calculating a basis amount by reference to tables compiled for this purpose by GAD. This will give a measure of the annual level of lifetime annuity the alternatively secured pension fund could generate on the open-market at that point, based upon the member’s sex, age (75) and assuming the member is in normal health and securing a level income for life. Again, the legislation refers to this as the ‘relevant annuity’ rate.

With an alternatively secured pension the member must draw a pension income of between 55% and 90% of the basis amount in any alternatively secured pension year starting on or after 6 April 2007. If the member does not draw an income of at least 55%, the registered pension scheme is treated as having made a scheme chargeable payment. But see RPSM09103150 for exceptions to this requirement. For alternatively secured pension years starting before 6th April 2007 there was no minimum income requirement (the maximum for those earlier years was 70% of the basis amount).

When an entitlement to alternatively secured pension arises the pension is deemed to be secured and, as there is no employer or insurance company guarantee of lifelong income, the maximum income is set at 90% (previously 70% as mentioned above)of the basis amount (which is lower than for unsecured pension) to ensure the fund adequately provides for the member no matter how long they live. There are also differences to the position with an unsecured pension in the way those limits are reviewed in order to ensure the funds are not depleted. RPSM09103060 explains how the limits on alternatively secured pensions are reviewed.

The legislation requires the ‘relevant annuity’ calculation to be done on the assumption that the member is aged 75, even in the rare circumstances where the initial entitlement arises at a later date. The same applies where the limit is subsequently reviewed at a later date.