RPSM09300080 - Scheme Administrator Pages: Member benefits: Pension benefits

Reaching the age of 75 without drawing a pension

If the member has reached the age of 75 without drawing a pension from a money purchase arrangement they must be provided with one, either through the purchase or provision of a secured pension or an alternatively secured pension. The one exception to this is where you are unable to trace the member concerned. In this situation the funds will be held ‘in suspense’ until the member’s whereabouts have been established (see RPSM09103108 for further details).

Alternatively secured pension is the continuation of income withdrawal beyond an individual’s 75th birthday but the general rules apply here even if the member’s funds were uncrystallised before they reached age 75. The scheme rules may offer a choice to the member as to what proportion of their remaining pension fund is used to:

• purchase a lifetime annuity contract (or scheme pension), or
• to be used (’designated’) to provide an alternatively secured pension from their 75th birthday onwards.

If they fail to make a choice or the scheme fails to act upon a default scheme rule to secure a lifetime annuity or scheme pension, then effectively the choice is taken for them by the tax legislation. Any uncrystallised funds are ‘deemed’ to become part of the member’s unsecured pension fund immediately before their 75th birthday (with a lifetime allowance test being triggered). The unsecured pension fund will become an alternatively secured pension fund under that arrangement on their 75th birthday. This change would happen at 00:01 hours on the 75th birthday, i.e. just after midnight. The member will then be required to draw at least the minimum level of alternatively secured pension from that fund in each alternatively secured pension year starting on or after 6 April 2007, or use the fund to purchase a lifetime annuity contract (or a scheme pension if the scheme rules allow this).

Where the required minimum income is not drawn (see RPSM09103050), whether by choice or because the scheme does not have the facility to provide alternatively secured pension, then the shortfall in pension will be taxable as a scheme chargeable payment (as explained at RPSM09103150 and RPSM04104830.