RPSM17100020 - Technical pages: Treatment of persons at age 75: Introduction
This guidance covers individuals who reached age 75 between 22 June 2010 and 5 April 2011.
Currently, for scheme members with money purchase arrangements in registered pension schemes who have not yet bought an annuity by the age of 75, the income withdrawals they may make become subject to strict minimum and maximum limits from the age of 75. Also, if such a member dies after reaching the age of 75 any of the remaining fund not used to pay either pensions to dependants or a charitable donation, is subject to tax charges up to 70 per cent. Specific IHT charges also apply to certain pension scheme members who die on or after their 75th birthday.
Who is affected by the changes announced in the June 2010 Budget?
The changes affect individuals with a money purchase arrangement under a registered pension scheme whose 75th birthday is on or after 22 June 2010 and who immediately before their 75th birthday either have
- an unsecured pension fund or
- funds held in the arrangement that they have chosen not to draw as benefits. These are referred to in the current legislation as ‘relevant uncrystallised funds”.
All references in this note/guidance to individuals, members and dependants affected by the changes should be read as references to individuals, members and dependants who reach the age of 75 on or after 22 June 2010.
There is no immediate change for any individual who reached the age of 75 before 22 June 2010. Any member or dependant whose 75th birthday was before 22 June 2010 and who is receiving an alternatively secured pension or a dependant’s alternatively secured pension respectively remains subject to the same rules and limits as applied before the Budget announcement until at least 5 April 2011. The Government has however announced that from the 2011-2012 tax year it will end the requirement to secure a pension income from a registered pension scheme by the age of 75.
Who is likely to be affected by the changes?
- Members of registered pension schemes and their dependants, particularly those members approaching the age of 75
- Registered pension schemes and their administrators, annuity providers and personal representatives of deceased pension scheme members.
Extent of the changes
- the lifetime allowance
- tax relief
- lump sums
What if a scheme has a rule which specifically does not offer unsecured pension arrangements beyond age 75?
It has been drawn to the Government’s attention that a number of money purchase arrangements under registered pension schemes may offer income withdrawal products to members but specifically do not offer unsecured pension arrangements from age 75. The transitional tax rules therefore include a statutory override which will allow the trustees or managers of a scheme with a scheme rule of this kind to treat a person as not having reached the age of 75 where that person does not reach age 75 until on or after 22 June 2010 and has not reached the age of 77. This will permit unsecured pension arrangements to continue to age 77.
This override is restricted to scheme rules which because of the tax rules provide that unsecured pension arrangements cannot extend or be offered beyond age 75. The override gives trustees and managers a discretion to provide or continue providing an unsecured pension beyond age 75 and up to age 77. Since the override is not mandatory, there is no obligation on the trustees or scheme manager to do so.