RPSM09100220 - Technical Pages: Member benefits: Overview: Types of arrangement: What the legislation means by an arrangement

What the legislation means by an arrangement

The pension rules and lump sum rule work at the level of an individual’s arrangement under a registered pension scheme, rather than at a scheme or member level. (Although there are some exceptions where particular lump sum benefits are being paid.) The same applies when dealing with the death benefit rules.

An arrangement is a contractual or trust-based arrangement made by or on behalf of an individual under a registered pension scheme.

An individual arrangement cannot be made under more than one registered pension scheme.

Multiple arrangements

Whilst an arrangement must be held in a single scheme, there are no limits on how many arrangements a member can hold under a registered pension scheme. In some schemes the member’s fund may be broken up into many separate arrangements; in others there may only be one.

An arrangement is a concept inherited under the new regime from the old personalpension scheme tax legislation. Before 6 April 2006, many personal pension schemes routinely structured a member’s fund under the scheme by splitting these funds between multiple arrangements in order to give the member maximum flexibility over when they drew benefits. Such schemes are likely to retain this framework under the post 5 April 2006 tax regime, particularly if the member has a mixture of arrangements under the scheme, some where benefits have been drawn and others where not.

On the other hand an occupational pension scheme that provides defined benefits is less likely to adopt a multiple arrangement structure under the new regime, given the nature of the benefit provision under the scheme. Although if the scheme provides benefits on a mixed basis to its members, for example it provides a defined benefit final salary accrual, but a money purchase benefit in relation to member contributions, those different benefit entitlements are treated as accruing in separate arrangements for tax purposes (see RPSM09100230).

Drawing benefits

The member may draw benefits from each arrangement independently of any other arrangements they hold within the same scheme (subject to the pension rules and lump sum rule).

Example

Jane is a member of registered pension scheme with benefits accruing through six arrangements within that scheme. When Jane is 60 she decides to start working part-time. To supplement her income she decides to draw benefits from two of the arrangements she holds in the scheme, leaving the remaining four arrangements untouched. Provided the scheme rules contain the necessary enabling provisions she is quite entitled to do this.

It is also possible for benefits to be drawn from only a proportion of the funds held within a single arrangement. This process is described in more detail on RPSM09100400.