RPSM09102520 - Technical Pages: Member benefits: An unsecured pension: Review of the unsecured pension limit: Member wishes to nominate new reference period

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.

Review of the unsecured pension limit where the member wishes to nominate a new reference period before 6 April 2011 and transition to pension drawdown

Subject to the agreement of the scheme administrator, a member may nominate that the current reference period should end before the scheduled date and a new one begin. This new reference period (and revised limit) must begin on the next anniversary of the reference date in relation to the existing reference period (i.e. the first day of the next pension year). In effect, a retrospective nomination is not allowed, and a member cannot make a nomination reaching a number of years ahead. The nomination must actually be made in the year before the change is to take effect.

Example

John’s pension years are 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.

However John’s pension fund has performed very well since the basis amount was first calculated on 1 October 2006 and he would like to draw a higher level of pension. Consequently if on or before 30 September 2008 John makes a request for a new reference date of 1 October 2008 and his scheme administrator agrees, the new reference period for the arrangement will look like this:

1 October 2008 to 30 September 2009 (the first in this new reference period but the third overall pension year)

1 October 2009 to 30 September 2010 (the second in this new reference period)

1 October 2010 to 30 September 2011 (the third in this new reference period)

1 October 2011 to 30 September 2012 (the fourth in this new reference period)

1 October 2012 to 30 September 2013 (the fifth in this new reference period).

The subsequent reference period will then commence on 1 October 2013. Of course John may request that another new reference period should begin before the above outline reference period ends. If the scheme administrator agrees to his request, the new reference period would operate on the same lines as described above.

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Changes from 6 April 2011:

The member is receiving an unsecured pension. Their current 5 year unsecured pension reference period ends on or after 6 April 2011. What happens if the member asks for a new reference period to begin before the new rules come into force?

If the scheme administrator accepts the request, the new reference period will not begin until the day after the end of his current pension year. The new rules will then apply. So if the current pension reference period ends on 6 April 2013, the pension year runs from 6 April to 5 April. If the member requests a new reference period during the pension year, ending on 5 April 2012, the new reference period starts on 6 April 2012. The new rules will apply so the new reference period will run for 3 years and the maximum income will be 100 per cent of the revised basis amount.