RPSM09104370 - Technical Pages: Member benefits: Lump sums: Pension commencement lump sum: Maximum amount: The applicable amount: On purchase of a lifetime annuity

The applicable amount when purchasing of a lifetime annuity contract from uncrystallised funds

The applicable amount when uncrystallised funds are used to purchase a lifetime annuity is one third of the amount used to purchase the annuity contract under the arrangement (or arrangements) in question. This amount is referred to as the ‘annuity purchase price’.

The legislation refers to a ‘third’ as the applicable amount is measured against the residual funds left to purchase the annuity after the lump sum payment.

Any funds that are attributable to a disqualifying pension credit are deducted from the annuity purchase price, as explained in RPSM09104240.

Any sums or assets that have previously been designated to provide that member with an unsecured pension, i.e. any funds that form part of the unsecured pension fund are also deducted from the annuity purchase price in calculating the applicable amount. The reason for this is explained in RPSM09104250, and the example on RPSM09104390 shows how this deduction is applied in practice.

The applicable amount when an annuity is purchased from uncrystallised funds is therefore one third of

• the cash sums applied to purchase the lifetime annuity/related dependants’ annuity, plus
• the market value of any assets (property, shares policies etc.) that are also applied for this purpose (taking into account any liabilities associated with that asset, such as a mortgage),

Minus

• any of those sums or assets which have previously been designated as available for the payment of unsecured pension, and
• any of those sums or assets which attributable to a disqualifying pension credit.

RPSM09104380 covers the position on joint life annuities and deferred annuity contracts and RPSM09104390 gives an example.