RPSM09102050 - Technical Pages: Member benefits: An unsecured pension: Overview: Partial vesting

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.

Partial vesting (fund designation) and the unsecured pension fund

Designation and additional fund designation

The member does not have to generate an unsecured pension from all the funds held in an arrangement. The member can choose to use only a proportion of the funds held in an arrangement to generate such a pension.

This is referred to in the legislation as member designation. The member designates the level of funds they want to be made available under an arrangement to provide an unsecured pension, and then they may add to this fund at a later date. This is referred to in the legislation as ‘additional fund designation’.

What forms part of the unsecured pension fund

The unsecured pension fund is the fund (the ‘sums and assets’) that has at any time been designated as available under a money purchase arrangement for the payment of unsecured pension to that member. These funds are referred to in the legislation as ‘member-designated funds’.

Once sums or assets have been designated as part of a member’s unsecured pension fund any capital growth or income generated is treated as being part of that unsecured pension fund. Similarly where assets are purchased at a later date from those funds those replacement assets also fall as part of the member’s unsecured pension fund (as do any future growth or income generated by those assets or sums). Any sums generated by the sale of assets held in those funds are part of the unsecured pension fund. This is because that growth or income and those replacement assets are derived from those ‘designated’ funds (whether directly or indirectly).

Any funds that are subsequently applied from those designated funds to purchase a lifetime annuity contract from an insurance company, or are applied to provide a scheme pension, fall out of the definition of an unsecured pension fund. Any funds used to purchase a short-term annuity contract or that are applied in paying income withdrawal to the member are no longer part of the unsecured pension fund.