RPSM09103020 - Technical Pages: Member benefits: An alternatively secured pension: Example of payment of an alternatively secured pension

An example of how an alternatively secured pension comes into payment at age 75

Alison reaches her 75th birthday on 25 April 2007.

On the 24 April 2007 she held benefits totalling £50,000 in a money purchase arrangement. £40,000 of these funds were being used to provide an unsecured pension through income withdrawal. No benefits had been drawn from the remaining funds of £10,000 (so these represent uncrystallised funds).

Alison can choose to

• purchase a lifetime annuity contract with some (or all) of both the £40,000 unsecured pension fund and the £10,000 uncrystallised funds, or
• choose (’designate’) for some (or all) of these funds to be used to provide an alternatively secured pension from her 75th birthday onwards.

If Alison fails to make a choice then effectively the choice is taken away from her. The uncrystallised funds are ‘deemed’ to become part of the unsecured pension fund immediately before her 75th birthday (with a lifetime allowance test being triggered). The unsecured pension fund will become an alternatively secured pension fund under that arrangement on her 75th birthday. This would all happen at 00.01 hours on 25 April 2007, i.e. just after midnight. Alison then has the choice to draw a reduced income withdrawal (alternatively secured pension) from that fund, or use the fund to purchase a lifetime annuity contract (or a scheme pension if the scheme rules allow this).

Alison chooses to draw her pension as an alternatively secured pension direct from the scheme from her 75th birthday. The £50,000 becomes the alternatively secured pension fund to generate income withdrawal payments within the given limits.