RPSM09102080 - Technical Pages: Member benefits: An unsecured pension: Overview: What happens at age 75
This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.
If the member became entitled to their pension on or after 6 April 2011 then see the guidance at RPSM09103500.
Uncrystallised funds and age 75
[s165(1), ‘Pension rule 4’][Para 8(2) and (3), Sch 28][Para 18(4), Sch 10, FA 2005] [Para 1-3 Sch 29]
An unsecured pension may only be paid from a money purchase arrangement whilst the member is under the age of 75. Similarly, a short-term annuity contract can only run for a period up to, and including, the day before the member’s 75th birthday.
Once the member reaches their 75th birthday the pension must be provided through a secured pension, or as an alternatively secured pension direct from the scheme (but see RPSM09103108 where, at that date, the member is untraceable). Any uncrystallised funds remaining in the arrangement immediately before the member’s 75th birthday are automatically treated at that point as available under the arrangement to provide unsecured pension, and become part of the unsecured pension fund at that time (with or without member designation).
This automatic designation triggers a lifetime allowance test through BCE 1 (see RPSM09102090). This automatic designation will happen to any part of the fund under a money purchase arrangement that has not yet crystallised.
The point of ‘designation’ is immediately before the member reaches age 75 - just before midnight (23:59 hrs) the day before that birthday. The member must, however, reach age 75 before the automatic ‘designation’ occurs. (So if the member died just before midnight the uncrystallised funds will not be automatically designated into the unsecured pension fund, and an uncrystallised funds lump sum death benefit could be paid.)
| [Para 1(3)(b), Sch 29][Para 34(2), Sch 10, FA 2005] |
A lump sum payment cannot be treated for tax purposes as a pension commencement lump sum if entitlement to it arose on or after the member’s 75th birthday. For more information about ‘entitlement’, see RPSM11102050 and RPSM11102055.
| [Para 11(1) and (2), Sch 28] |
If a lifetime annuity contract is not purchased (or, where relevant, a scheme pension provided), unless the member is untraceable (RPSM09103108) the unsecured pension fund automatically becomes available to provide an alternatively secured pension as the member reaches their 75th birthday. The unsecured pension fund simply becomes the alternatively secured pension fund at that point. The effective date of this switch will be the point the member reaches age 75 - immediately after midnight (00:01 hrs) on their 75th birthday.
An alternatively secured pension is simply income withdrawal direct from the arrangement, but under more restricted rules beyond age 75. Income withdrawals after age 75 may only be taken within the permitted limits (see RPSM09103050). Alternatively a lifetime annuity contract can be purchased at a later date or, if the scheme gives them that option, the funds can be applied to provide a scheme pension.
| Glossary (RPSM20000000) |
