Talbot and Muir

Scheme Pension

A scheme pension is a form of secured pension which is intended to provide a stable income for life based upon an actuary's specific calculation rather than the Government Actuary Department's defined rates. It offers an alternative retirement option to traditional methods such as purchasing an annuity and capped drawdown and for certain clients may be a more attractive option as it can often provide higher income than the other methods.

As Scheme Pension is paid directly from the fund, in a similar way to Capped Drawdown, full control of the scheme's assets is retained unlike buying an annuity whereby all assets would have to be sold. Contrasting with Capped Drawdown the actuary can take into account poor health within the calculations which can dramatically increase the income payable, as well as building in guarantee periods.

Pros and Cons of Scheme Pension

Pros

• There are no artificial limits, so potentially higher pensions available than under a Drawdown Pension.
• Not tied to market annuity rates.
• Control of investments retained.
• Guarantee period available, subject to a maximum of 10 years.

Cons

• Less flexible than a Drawdown Pension.
• Cannot increase by more than RPI without triggering a further test against the lifetime allowance.
• Can only reduce in payment, where the reduction is on a scheme wide basis.
• Same rate of tax on death as a Drawdown Pension.
• Not as certain as an insured annuity.
• Ongoing cost of regular reviews.