RPSM09102020 - Technical Pages - Member benefits: An unsecured pension: Overview: Form of unsecured pension

This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. If the member became entitled to their pension on or after 6 April 2011 then see the guidance at RPSM09103500.

Form of unsecured pension payable

A money purchase arrangement may be used to provide a member with an unsecured pension in one of two ways. These are either

• direct from the scheme through income withdrawal (see RPSM09102030), or
• indirectly through the purchase of a short-term annuity contract or a series of such contracts from an insurance company (see RPSM09102040).

An unsecured pension may be provided by a combination of income withdrawal payments and short-term annuity contracts, or by a series of short-term annuity contracts running concurrently.

Level of unsecured pension payable

Whatever way the unsecured pension is being provided the rules on how much unsecured pension can be paid each year are the same. And they apply to the total of all unsecured pension derived from the arrangement in question (whether paid through income withdrawals, short-term annuity contracts or a combination of both).

The maximum limit is calculated in such a way as to mirror the level of lifetime annuity income the member could have if the funds generating the unsecured pension were used to buy an annuity for life instead. In other words it is calculated in a manner consistent with the ‘pension for life’ philosophy. The maximum amount of unsecured pension that can be paid is found by using tables produced for this purpose by GAD (see RPSM09102330).

The unsecured pension fund

The funds used within an arrangement to generate an unsecured pension are referred to as the unsecured pension fund. The greater this fund is the higher the potential level of unsecured pension that can be drawn.

RPSM09102050 explains how the legislation defines an unsecured pension fund.