RPSM09300070 - Scheme Administrator pages: Member benefits: Pension benefits

Review

You must carry out a review of the unsecured pension limit every five years. There will need to be a review on the first day of the sixth pension year, then the first day of the eleventh year etc. until the earlier of

• you agreeing to a request from the member for an earlier review date
• the entire unsecured pension fund being used to buy a lifetime annuity or provide a scheme pension,
• the member reaching age 75, or
• the member’s death.

The point this five-yearly formal review must be carried out is referred to in the legislation as the ‘reference date’ for review. The five year period a formal calculation applies to is called a ‘reference period’. So, assuming that none of the above four events occur, the first reference period is the first to fifth pension years, the second reference period the sixth to tenth pension years and so on.

A more frequent review of the limit is only allowed in four situations:

• the first is where you agree to a request from the member for an earlier review date. In these circumstances the existing five year reference period will end early, and a new five year reference period will begin (see RPSM09102520);
• the second is where a lifetime annuity contract is purchased from part of the unsecured pension fund or part of that fund is applied to provide a scheme pension;
• the third is where the unsecured pension fund is reduced following the application of a pension sharing order;
• the fourth is where there is an additional fund designation.

A review will not disrupt the existing pension year structure. The dates the existing and later pension years end and begin will not change.

Just as the pension years remain unchanged, the timing of the five year reference period will also normally remain unchanged. Only in cases where the first bullet applies, i.e. where you agree to the member arranging an earlier review will the timing of the five year reference periods change.

So in the case of the last three of the bullets above, more frequent reviews will not change the timing of the formal review due at the end of the five-year reference period. The five-yearly review will still take place on the reference date of the first day of the sixth, eleventh etc. pension year. All that happens is that the existing limits for some of the existing pension years in that five-year reference period are replaced with a revised limit, that will apply up until the next formal review at the beginning of the next five- year reference period.

Where a five yearly review is due to expire, you may actually make the calculation within a 60 day window in advance of the review date for the next reference period. However this 60 day window cannot be used where the review is being triggered through additional fund designation, lifetime annuity purchase/scheme pension provision or following a pension sharing order. Using the 60 day window does not change the date of the next reference date for review, or the date the current and following pension years fall between. The limit calculated at the review date still only kicks in on the set reference date for review; so as the beginning of the sixth pension year, eleventh pension year etc.

You then re-calculate the new limit in exactly the same way you did when initially making the calculation. You re-calculate the basis amount using the GAD tables, based on the net value of the unsecured pension fund and the individual’s age at that date and the revised limit for the next five pension years is then set at 120% of the revised basis amount.