RPSM09103150 - Technical Pages: Member benefits: Member benefits: An alternatively secured pension: Limits not complied with

Where the alternatively secured pension limits are not complied with

Except in the two (or notionally three) situations described below, when the minimum income requirement does not apply, a member must draw an income from his/her alternatively secured pension fund in respect of a money purchase arrangement under a registered pension scheme of between 55% and 90% of the basis amount in each alternatively secured pension year which commences on or after 6 April 2007 (see RPSM09103030).

Amount in excess of 90% of basis amount

Where an arrangement makes a payment in a pension year that breaches the maximum alternatively secured pension payment permitted for that period, the excess is an unauthorised member payment.

That excess is taxed in accordance with RPSM04104510.

The unauthorised member payment may also give rise to

• a scheme sanction charge - see RPSM04104800, and/or
• an unauthorised payments surcharge - see RPSM04104600 

Amount below 55% of basis amount

Where in the case of any alternatively secured pension fund, the minimum level of income of at least 55% of the basis amount is not paid out of the member’s alternatively secured pension fund in any alternatively secured pension year beginning on and after 6 April 2007, the scheme administrator is deemed to have made a scheme chargeable payment. But the requirement to draw a minimum level of income of at least 55% of the basis amount does not apply to an alternatively secured pension year if:

• it is the alternatively secured pension year ending immediately before the death of the member, or
• in the alternatively secured pension year the member’s fund is applied towards the provision of a scheme pension or lifetime annuity.

and so no scheme chargeable payment arises in these two circumstances.

There is something approaching a third exception, which applies in the circumstances described inRPSM09103108, relating to a ‘suspense period’ where a member was untraced at age 75. Instead of becoming an alternatively secured pension fund, the tax rules expect nothing to be drawn from the fund at this time, and there is no sanction charge for drawing zero pension.

Where a scheme chargeable payment does arise, the amount of the scheme chargeable payment is the difference between:

• the total amount of alternatively secured pension paid to the member, or nil if no payments are made, in respect of the arrangement in the alternatively secured pension year, and
• 55% of the basis amount for the alternatively secured pension year.

The minimum income requirement also applies even where the scheme does not offer the member the option of income withdrawals from the fund at all, therefore a tax charge could arise where the member does not comply with scheme rules requiring them to use their fund to purchase a lifetime annuity or scheme pension before they are 75. See RPSM04104800 for further information on the tax charge.