Chapter PTM062310
| Published date | 27 March 2015 |
| Record Number | PTM062310 |
| Glossary | PTM000001 |
A scheme pension
Commencement of a scheme pension
Requirements for a pension to be a scheme pension
Guaranteed pension
Provision of a scheme pension
Provision of a scheme pension by a defined benefits arrangement
Provision of a scheme pension by a money purchase arrangement
A secured pension and phased retirement
Statements sent to scheme members about scheme pensions
Taxation of scheme pensions
Section 165, pension rule 3, 4 and 6 and paragraph 2 Schedule 28 Finance Act 2004
As an alternative to drawdown or uncrystallised funds pension lump sums, a registered pension scheme may provide its members with a secured pension, either:
- paid direct from the scheme as a scheme pension, or
- by purchasing a lifetime annuity contract from an insurance company (see PTM062320).
The legislation sets out conditions that a pension entitlement must meet to be treated as a scheme pension for tax purposes.
If any pension paid from the scheme is not a scheme pension, those payments will be unauthorised member payments (unless of course the pension is another form of authorised pension payment) and will be taxed accordingly.
Section 165, pension rules 3, 4 and 6 and paragraph 2 Schedule 28 Finance Act 2004
A scheme pension is the only way a defined benefits arrangement may provide its members with a pension benefit. It is also possible for a money purchase arrangement to provide a scheme pension.
Further information below explains what a scheme pension is, and the conditions governing such pensions.
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Commencement of a scheme pensionScheme pensions do not have to be provided by age 75 - they can come into payment at any time from the member’s 55th birthday onwards. But any undrawn entitlements are tested for lifetime allowance purposes at age 75.
The lifetime allowance position is covered in more detail at PTM088100 onwards.
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Requirements for a pension to be a scheme pensionParagraph 2 Schedule 28 Finance Act 2004
To be a scheme pension the pension must:
- be paid for the life of the member
- be paid at least annually
- not be capable of being reduced year on year (except in limited circumstances - see below), and
- be paid by the scheme administrator (or by an insurance company chosen by the scheme administrator).
Paragraph 2(3)(a) Schedule 28 and paragraph 14 Schedule 29 Finance Act 2004
A scheme pension may be guaranteed for a set period of up to ten years - for more...
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