RPSM09103030 - Technical Pages: Member benefits: An alternatively secured pension: Limit when entitlement first arises

This guidance only covers members who became entitled to an alternatively secured pension before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.

If the member reached age 75 on or after 6 April 2011 then see the guidance at RPSM09103500.

Limit where an entitlement to an alternatively secured pension first arises under an arrangement before 6 April 2011 and transition to drawdown pension

The initial maximum alternatively secured pension payable from an arrangement is calculated at the point entitlement to that alternatively secured pension first arises. This will almost always be the same date - the member’s 75th birthday. The occasions where this may not be the case are discussed on RPSM09103100.

The maximum is calculated in broadly the same manner as with unsecured pension limits, with the scheme administrator calculating a basis amount by reference to tables compiled for this purpose by GAD. This will give a measure of the annual level of lifetime annuity the alternatively secured pension fund could generate on the open-market at that point, based upon the member’s sex, age (75) and assuming the member is in normal health and securing a level income for life. Again, the legislation refers to this as the ‘relevant annuity’ rate.

With an alternatively secured pension the member must draw a pension income of between 55% and 90% of the basis amount in any alternatively secured pension year starting on or after 6 April 2007. If the member does not draw an income of at least 55%, the registered pension scheme is treated as having made a scheme chargeable payment. But see RPSM09103150 for exceptions to this requirement. For alternatively secured pension years starting before 6^t h April 2007 there was no minimum income requirement (the maximum for those earlier years was 70% of the basis amount).

When an entitlement to alternatively secured pension arises the pension is deemed to be secured and, as there is no employer or insurance company guarantee of lifelong income, the maximum income is set at 90% (previously 70% as mentioned above)of the basis amount (which is lower than for unsecured pension) to ensure the fund adequately provides for the member no matter how long they live. There are also differences to the position with an unsecured pension in the way those limits are reviewed in order to ensure the funds are not depleted. RPSM09103060 explains how the limits on alternatively secured pensions are reviewed.

The legislation requires the ‘relevant annuity’ calculation to be done on the assumption that the member is aged 75, even in the rare circumstances where the initial entitlement arises at a later date. The same applies where the limit is subsequently reviewed at a later date.

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Changes after 6 April 2011:

The member is currently receiving alternatively secured pension? Can they take advantage of the 100 per cent limit?

Yes. The current alternatively secured pension limits (55 per cent minimum and 90 per cent maximum) for the amount of pension that must be taken in an alternatively secured pension year were repealed with effect from 6 April 2011.

For example, if the member’s alternatively secured pension year ends on 30 June 2011 and their basis amount is £10,000 the maximum income the member could take under the old rules was £9,000 and they had to take a minimum income of £5,500. From 6 April 2011, the member will be subject to the new drawdown pension limits (100 per cent maximum and no minimum). So the member can now take a maximum of £10,000 for the drawdown pension year ending on 30 June 2011. And, if the member has not already taken the minimum income they will no longer be required to do so.