RPSM09102630 - Technical Pages: Member benefits: An unsecured pension: Applying the unsecured pension limit in practice: Examples

Examples of applying the unsecured pension limit with income withdrawal payments

Example 1

Heather is in receipt of a level short-term annuity of £3,000 a year, payable in equal monthly amounts.

The limit on aggregate unsecured pension paid from the relevant unsecured pension fund held under that arrangement for the pension year is £5,000.

Heather wants to draw some additional unsecured pension in that year through income withdrawal. As the scheme administrator knows that her income from the annuity contract for the given period is clearly established as a question of fact they are content to pay her £2,000 of income withdrawal throughout the pension year.

Example 2

Peter is in receipt of income from a with-profits short-term annuity contract. The income paid from the contract varies from year to year depending on the performance of the underlying assets backing up the contract. The income is paid annually in arrears at the end of the calendar year. This ties in with the end of each pension year.

The limit on aggregate unsecured pension from the relevant unsecured pension fund held under that arrangement for the pension year is £6,000.

The income he received last year from the short-term annuity contract was £5,500.

Peter wants to draw some additional unsecured pension through income withdrawal. The scheme administrator is unwilling to pay Peter any income withdrawal as they cannot establish what level of unsecured pension Peter will receive from the short- term annuity contract in that year. As the annuity level is likely to be close to (or even at) the maximum level the scheme administrator decides that no income withdrawal payments can be made until the end of the period when the annuity income is established and paid.