RPSM10104740 - Technical Pages: Death benefits: Pensions: Dependants' alternatively secured pension before 6 April 2011 and transition to drawdown pension
This guidance only covers individuals who became entitled to dependants’ pension before 6 April 2011. If the member who died reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.
If an individual became entitled to their pension on or after 6 April 2011 then see the guidance on dependants’ drawdown pensions at RPSM10104850.
A dependants’ alternatively secured pension before 6 April 2011
| [Paras 19, 21 and 25(1) to (3), Sch 28][Para 23, Sch 10, FA 2005] |
A dependants’ alternatively secured pension may only be paid direct from the arrangement as income withdrawals. RPSM09102030 explains what income withdrawals are.
A dependant may become entitled to a dependants’ alternatively secured pension
- at some point after age 75 (following the death of the member), or
- at age 75, where already in receipt of a dependants’ unsecured pension.
When entitlement initially arises, funds are said to be designated to provide the dependant with a dependants’ alternatively secured pension. Those funds then become that dependant’s dependants’ alternatively secured pension fund (see RPSM10104730).
The dependants’ alternatively secured pension fund created at that time may in some circumstances be added to at a later date (see RPSM10104760).
A dependants’ alternatively secured pension can be paid at the same time as any continuing guarantee payments from the member’s alternatively secured pension fund. In such a case, the fund would have been split.
Taxation of a dependants’ alternatively secured pension
| [Para 6, Sch 31][s579A to s579D, Chapter 5A, ITEPA03] |
A dependants’ alternatively secured pensionis taxable as pension income on the recipient through PAYE (see RPSM04101020).
Changes from 6 April 2011
On 6 April 2011 the terms used to describe dependants’ alternatively secured pension change:
- Dependants’ alternatively secured pension becomes dependants’ drawdown pension, and
- A dependants’ alternatively secured pension fund becomes a dependants’ drawdown pension fund,
The maximum amount of dependants’ drawdown pension that may be paid in a pension year is 100 per cent of the basis amount. When the member is 75 or older this maximum dependants’ drawdown pension must be reviewed every year.
The new pension terms will apply from 6 April 2011. But when the new maximum pension rules will apply depend on the individual’s circumstances.
A dependant is aged 75 or over and receiving an alternatively secured pension. What effect will the new rules have on them?
Their current “alternatively secured pension year” will become known as a “drawdown pension year” and, where it started after 6 April 2010, it will continue as before. There are some changes to the minimum and maximum pension rules. Look at the following example for full details.
Example
Sarah had been receiving an unsecured pension from a registered pension scheme when she reached her 75th birthday on 1 June 2010. From her 75th birthday Sarah’s unsecured pension fund became an alternatively secured pension fund and the income withdrawn from the fund became alternatively secured pension. Her alternatively secured pension year runs from 1 June 2010 to 31 May 2011. When she became entitled to alternatively secured pension on her 75th birthday her basis amount was £10,000. Up to 5 April 2011 the maximum that Sarah can drawdown is £9,000 (90 per cent of the basis amount) and Sarah has taken income withdrawal amounting to £3,000 from her alternatively secured pension fund.
From 6 April 2011 Sarah’s alternatively secured pension fund becomes a drawdown pension fund. Her drawdown pension year runs to 31 May 2011 and the maximum income drawdown she can take in the year is now 100 per cent of the existing basis amount. So Sarah can take up to £10,000 for the drawdown pension year ending on 31 May 2011. As Sarah has already taken £3,000 as drawdown pension before 5 April 2011 the maximum she can take between 6 April 2011 and 31 May 2011 is £7,000.
Under the pre 6 April 2011 alternatively secured pension rules, Sarah had to take a minimum of 55 per cent of the basis amount in each pension year - £5,500 in Sarah’s case as her basis amount was £10,000. However this requirement for a minimum amount to be drawn ceases to apply from 6 April 2011 so if Sarah decides that she does not want to take any further pension drawdown after 5 April 2011 she can do so with no tax penalty.
A dependant is currently receiving alternatively secured pension? Can they take advantage of the 100 per cent limit?
Yes. The current alternatively secured pension limits (55 per cent minimum and 90 per cent maximum) for the amount of pension that must be taken in an alternatively secured pension year will be repealed with effect from 6 April 2011.
For example, if the alternatively secured pension year ends on 30 June 2011 and their basis amount is £10,000 the maximum income they can take is currently £9,000 and they must take a minimum income of £5,500. From 6 April 2011, they will be subject to the new drawdown pension limits (100 per cent maximum and no minimum). So they can now take a maximum of £10,000 for the drawdown pension year ending on 30 June 2011. And, if they have not already taken the minimum income they will no longer be required to do so.
| Glossary (RPSM20000000) |
