RPSM09102350 - Technical Pages: Member benefits: An unsecured pension: Limit on unsecured pensions: When the member dies or reaches age 75

Unsecured pension limits where the member dies or reaches age 75

Where the member dies or reaches the age of 75 in a pension year that pension year will be deemed to end immediately before that event. (For reaching age 75 this will be just before midnight, 23:59 hrs, on the day before the member’s 75th birthday.)

For the purposes of calculating the pension limit that part pension year will be treated the same way as if it had continued for a full 12 months. So if the maximum unsecured pension has already been paid for that pension year there is no concern.

The shortened pension year will be the last such year. Once the member dies or reaches age 75 no further unsecured pension may be paid.

What happens

• where the member reaches age 75 is dealt with on RPSM09102080, and
• where the member has died is dealt with on RPSM09102140.

Example

Hilary is 75 on 1 April 2007. At that point she is drawing an unsecured pension, as income withdrawal, from a money purchase arrangement. She is in the middle of a pension year running from 1 February 2007 to 31 January 2008, with a maximum unsecured pension of £4000 per annum.

As Hilary has reached the age of 75 the pension year is only deemed to run from 1 February 2007 to 31 March 2007 (2 months). However, the £4000 maximum applies to that shortened pension year in the same way it would have done if it had continued for 12 months. So if Hilary had already drawn £4000 of income withdrawals in those 2 months then there would be no repercussions.

Short-term annuity contracts

A short-term annuity contract cannot be purchased by a scheme administrator for a period that runs past a member’s 75th birthday. As we are dealing with a known date of occurrence the level of unsecured pension that will be provided in any shortened final 12 month period will be a question of fact under the contract as drafted at the point of purchase, and would have been reflected in the cost of purchasing that contract. The unsecured pension limit applying at the time of purchase will of course also be a factor.

Where the member dies the short-term annuity contract will provide for payments to stop immediately, unless the contract has been guaranteed for a set period. This will of course be a factor that will be reflected in the cost of the annuity contract.