RPSM09102320 - Technical Pages: Member benefits: An unsecured pension: Limit on unsecured pensions: Example of pension years

An example showing how the pension years are set when an unsecured pension is first drawn from an arrangement

Harry draws all his benefits from an arrangement on 1 October 2006. He takes the maximum pension commencement lump sum and opts to use the remaining funds to generate an unsecured pension.

The lump sum is paid and funds designated to provide an unsecured pension on 1 October 2006. A lifetime allowance test takes place at that date through BCE 1.

The scheme administrator also calculates the maximum unsecured pension on that date. A maximum limit is set of £5,000 per annum.

Harry’s pension years are therefore as follows

1 October 2006 to 30 September 2007 (the first pension year)
1 October 2007 to 30 September 2008 (the second pension year)
1 October 2008 to 30 September 2009 (the third pension year)
1 October 2009 to 30 September 2010 (the fourth pension year)
1 October 2010 to 30 September 2011 (the fifth pension year)
1 October 2011 to 30 September 2012 (the sixth pension year), and so on.

The first five pension years represent the first reference period. Unless a review is triggered, the £5,000 limit will apply to all those first five pension years.

The sixth pension year is the first year in the second reference period. A revised limit will always be calculated at the beginning of that sixth pension year (whether or not there has been an additional review triggered in that earlier, first reference period). This limit will again apply to all the remaining pension years in that second reference period (ending with the tenth pension year, which runs from 1 October 2015 to 30 September 2016), unless again an additional review is triggered.

These pension years will not change no matter how many reviews of the maximum occur.