RPSM10104472 - Technical Pages: Death benefits: Pensions: Dependants’ unsecured pension: Pensions in payment on 5 April 2006

This guidance only covers individuals who became entitled to dependants’ unsecured pension before 6 April 2011.

If an individual became entitled to their pension on or after 6 April 2011 then see the guidance on dependants’ drawdown pensions at RPSM10104850.

Dependants’ pensions in payment on 5 April 2006 going forward as dependants’ unsecured pension

[Article 30 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI2006/572]

Any pension being paid to a dependant aged under 75 as income withdrawal from a personal pension scheme on 5 April 2006 that becomes a registered pension scheme will become a dependants’ unsecured pension from 6 April 2006 onwards. Where a dependant was entitled to a pension but has chosen to defer payment of the pension in accordance with s 636(5) ICTA 1988 before 6 April 2006 this will be treated as becoming a dependant’s unsecured pension on 6 April 2006.

Any dependants’ pension in payment on 5 April 2006 paid

• direct from the funds of a small self-administered scheme (SSAS) in accordance with paragraphs 20.39 to 20.42 of the IR12(2001) Practice Notes on the Approval of Occupational Pension Schemes and the scheme rules did not require an annuity to be purchased for the individual, or
• direct from the funds of a SSAS approved under s590 ICTA 1988 where the rules did not require an annuity to be purchased for the individual
• as income drawdown from any retirement benefits scheme (including a SSAS) within the requirements laid out in Appendix XII of the IR12(2001) Practice Notes on the Approval of Occupational Pension Schemes.

from a money purchase arrangement that becomes a registered pension scheme will also be treated as dependants’ unsecured pension from 6 April 2006 onwards.

Transition into the unsecured pension rules on maximum payment and review of those limits

[Article 5 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI2006/572]

From 6 April 2006 onwards there is no requirement to draw a minimum level of dependants’ unsecured pension from such an arrangement.

The maximum amount of unsecured pension that can be drawn will continue to be the maximum amount that could have been drawn under the relevant pre 6 April 2006 rules until the maximum amount is reviewed and a new basis amount set. The legislation calls this period in which the existing drawdown maxima apply the ‘first reference period’.

The first reference period runs from 6 April 2006 until the earlier of

• 6 April 2008,
• the day before the day on which the basis amount is recalculated following the purchase of an annuity or dependants’ scheme pension, and
• the day before the day fixed by the scheme administrator on which to recalculate the basis amount.

So scheme administrators have a period of up to two years after 6 April 2006 in which to recalculate the appropriate basis amount for existing arrangements. The next five yearly reference period will start from this recalculation point.