PTM062590 - Member benefits: pensions: drawdown pension rules immediately before 6 April 2015: flexible drawdown pensions - minimum income requirement (position up to 5 April 2015)
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives.
If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
Glossary |
Pensions that are included in the minimum income requirement (up to 5 April 2015)
Pensions that do not count towards the minimum income requirement (up to 5 April 2015)
Valuing any relevant income received which is not being paid in sterling (up to 5 April 2015)
Note: Flexible drawdown funds in existence immediately before 6 April 2015 are from that date automatically treated as flexi-access drawdown funds, which have different rules. No new flexible drawdown funds can be set up from that date. For guidance on flexi-access drawdown funds, see PTM062700.
Pensions that are included in the minimum income requirement (up to 5 April 2015)
Paragraph 14 Schedule 28 Finance Act 2004
Regulation 3 The Registered Pension Schemes (Relevant Income) Regulations - SI 2011/1783
Regulation 9 The Pension Protection Fund (Tax) Regulations - SI 2006/575
The minimum amount of other pension income a member must be receiving in order to be eligible for flexible drawdown under the tax rules is:
- for flexible drawdown declarations made before 27 March 2014, £20,000, or
- for flexible drawdown declarations made on or after 27 March 2014, £12,000.
Only pensions actually in payment count towards the minimum income requirement for flexible drawdown. To qualify, the pension must be guaranteed for life and, in general, not be one that can reduce from one year to the next.
The member can count towards the minimum income requirement the amounts of the following broad types of pension that they actually receive:
- state pension
- scheme pensions
- dependants’ scheme pensions, and
- lifetime annuities, and
- dependants’ annuities.
The full details of what types of pension count towards the minimum income requirement are as follows:
- A scheme pension or dependants’ scheme pension paid as an annuity
- Where a scheme pension or dependants’ scheme pension is paid from a registered pension scheme and the pension is provided from an annuity policy, the pension counts towards the minimum income requirement even if the pension scheme has fewer than 20 people getting a pension.
- A scheme pension or dependants’ scheme pension from a registered pension scheme which is not paid as an annuity and the scheme has 20 or more people receiving a pension. (Guidance on what a scheme pension is can be found at PTM062300. Note: all pensions paid from a defined benefits (which includes final salary) part of a registered pension scheme should be a scheme pension).
- Pension paid from a registered pension scheme as a lifetime annuity or dependants’ annuity where the annuity either will pay the same amount each year or the amount can increase.
- Pension paid as a lifetime annuity or dependants’ annuity where the amount you get each year varies, and can go down can be counted towards the minimum income requirement. But unless the annual amount of the annuity is calculated only by reference to the RPI in accordance with regulation 2(2)(a)(i) of SI2006/568, the amount that is included is the minimum amount payable each year under the contract in accordance with regulation 2(4) SI 2006/568.
- (Guidance on what a lifetime annuity is can be found at PTM062400).
- Pensions from an overseas pension scheme that would be one of the types of pensions listed above if paid from a registered pension scheme. An overseas pension scheme is a pension scheme set up outside the UK that is not a registered pension scheme and meets certain conditions set by regulations. Guidance on how a scheme meets the definition of an overseas pension scheme is at PTM111000.
- Periodic compensation paid by the Pension Protection Fund
- State pension
- Other social security pensions that are either:
- taxable under section 577 ITEPA 2003 (graduated retirement benefit, industrial death benefit, widowed mother’s allowance, widowed parents allowance, and widow’s pension), or
- payable under the law of another country outside the UK and are very similar in character to the state pension and other benefits taxable under section 577 ITEPA 2003.
- Certain payments made by the financial assistance scheme (FAS) or because the pension scheme is to enter FAS.
Pensions that do not count towards the minimum income requirement (up to 5 April 2015)
Paragraph 14A(4) Schedule 28 Finance Act 2004
Regulations 2, 3 and 4 The Registered Pension Schemes (Relevant Income) Regulations - SI 2011/1783
Drawdown pensions and dependants’ drawdown pensions do not count towards the minimum income requirement.
Short-term annuities and dependants’ short-term annuities do not count towards the minimum income requirement.
Scheme pensions paid from a registered pension scheme in respect of defined benefits arrangements where the scheme has fewer than 20 members do not count towards the minimum income requirement, unless the pension is provided from an annuity policy.
If the terms of a lifetime annuity contract or dependants’ annuity contract allow the annual amount of the annuity payment to go down, any amount over the minimum amount payable each year under the contract cannot be counted, unless the annual amount of the annuity is calculated only by reference to the RPI in accordance with regulation 2(2)(a)(i) of SI2006/568.
A pension from an overseas pension scheme that would be one of the types listed above if paid from a registered pension scheme does not count towards the minimum income requirement.
An overseas pension scheme is a pension scheme set up outside the UK that is not a registered pension scheme and meets certain conditions set by regulations. Guidance on how a scheme meets the definition of an overseas pension scheme is at PTM111000.
Valuing any relevant income received which is not being paid in sterling (up to 5 April 2015)
Paragraph 14(A) (6) Schedule 28 Finance Act 2004
In flexible drawdown minimum income requirement tests, any relevant income that is payable in a currency other than Sterling is to be converted to its Sterling equivalent using the exchange rate for the relevant day i.e. the declaration date for the first declaration. Any suitable spot rate for that day can be used.