RPSM09102410 - Technical Pages:
Member benefits: An unsecured pension: Review of the unsecured
pension limit
Review of the unsecured pension limit
The overall limit on payment of an
unsecured pension is the same whether that pension
is drawn as income withdrawal, through a
short-term annuity contract or a combination of
the two. There is also a single process for reviewing this limit
over time. The limit does, however, operate in practice somewhat
differently depending on the variation of unsecured pension
provision the member chooses.
To help ensure the unsecured pension fund can continue to
provide an income for life for the member, the maximum income that
may be drawn from that fund must be reviewed at least every five
years. The maximum will change, depending on investment performance
and the income drawn. So if, for example, the fund has performed
well, and the pension drawn has been minimal, the maximum will in
all likelihood go up. If the fund has performed poorly, and near
maximum pension has been drawn, it will in all likelihood go down.
In addition to this basic requirement to review at 5 yearly
intervals certain events trigger an additional review.
Where the scheme administrator agrees, the member may
request that a review of the maximum amount is carried out before
the end of the current five year reference period. If this occurs a
new ‘reference period’ will commence from the beginning
of the following pension year following the request.
In addition a review is triggered where the fund value is
reduced because part of the unsecured pension fund is used to
purchase a
lifetime annuity, applied to provide a
scheme pension, or taken away from the member due
to a
pension sharing order. In these circumstances
there needs to be a reduction in the maximum to reflect the reduced
unsecured pension fund.
A review will also be required if the unsecured pension fund
is increased by the additional designation of
uncrystallised funds still held in the
arrangement. In this circumstance the maximum needs to be reset at
a higher level to reflect the increased fund size.
How the review works varies for each trigger. Further
details on the different types of review can be found at:
- five year formal review of unsecured
pension limits –
RPSM09102420 to
RPSM09102450,
- review made by request of member and with
agreement of scheme administrator –
RPSM09102520
- review where an annuity is purchased or a
scheme pension provided –
RPSM09102460 to
RPSM09102470,
- review when the unsecured pension fund is
reduced due to pension sharing –
RPSM09102480, and
- review when additional fund designation
occurs –
RPSM09102490
