RPSM09202040 - Member pages: Member benefits: Pension benefits from a defined contribution or cash balance arrangement: Unsecured pensions

Unsecured pensions

Your scheme may offer you the opportunity to use your fund to provide an unsecured pension. This is a payment which will be paid either:

• direct from the scheme through income withdrawal - see RPSM09102000, or
• indirectly through the purchase of a short-term annuity contract or a series of such contracts from an insurance company -see RPSM09102000.

An unsecured pension may be provided by a combination of income withdrawal payments and short-term annuity contracts, or by a series of short-term annuity contracts running concurrently.

Limits

It does not matter in which way the pension is provided as the rules on how much unsecured pension can be paid each year are the same in both cases. They apply to the total of all unsecured pension derived from the arrangement in question (whether paid through income withdrawals, short-term annuity contracts or a combination of both). - see RPSM09102300

The maximum limit is calculated in such a way as to mirror the level of lifetime annuity income you could have if the funds generating the unsecured pension were used to buy an annuity for life instead. In other words it is calculated in a manner consistent with the ‘pension for life’ philosophy.

The funds used within an arrangement to generate an unsecured pension are referred to as the unsecured pension fund. The greater this fund is the higher the potential level of unsecured pension you can draw.