A new consultation [PDF] launched today by HMRC seeks views on the underlying actuarial assumptions from the Government Actuary's Department (GAD) for updated HMRC tables to reckon the maximum annual income for member's and dependant's unsecured and alternatively secured pensions (ie income drawdown) under the new 'simplified' tax regime.

(An unsecured pension fund is the fund of tax relieved pension savings which allows the individual the facility for income withdrawal. Individuals can only have an unsecured pension fund up to age 75. An alternatively secured pension fund extends the facility for income withdrawal for those who reach the age of 75 and do not wish to use their pension savings to purchase an annuity or to provide a scheme pension.)

The tables which are the subject of this consultation will be used only in connection with the new regime, and will apply only from 6 April 2006. For income drawdown under the existing tax regime, the current tables must continue to be used.

The Finance Act 2004 (Sch 28 para 14) introduced the terms 'relevant annuity' and 'annual amount' of the relevant annuity. These terms are used throughout the legislation in relation to the application of an annual limit on the level of a member's unsecured pension and alternatively secured pension that can be drawn under a money purchase arrangement. They are also used in relation to equivalent dependant's unsecured/alternatively secured pensions.

The draft Registered Pension Schemes (Relevant Annuities) Regulations [PDF] require that the 'annual amount' of a 'relevant annuity' is to be calculated using HMRC tables prepared by GAD. The purpose of the tables is to provide a 'basis amount', ie 'the annual amount of the relevant annuity which could have been purchased by the application of the sums and assets representing the member's unsecured pension fund on the nominated date' (FA 2004 Sch 28 paras 10, 13, 24 and 27).

The 'basis amount' is a measure of the annual amount of lifetime annuity income an unsecured pension fund (up to age 75, but alternatively secured pension thereafter) could generate for a member or dependant at the point of calculation in accordance with the Relevant Annuities Regulations, which will require that:

• The tables will set out the annual amount of relevant annuity that would provide a level income for the member or dependant on a single life basis and with no guarantee period.
• Separate tables for men and women are provided.
• The tables contain rates covering an age range from 0 to 75 years old. (This will be required because, for example, a child dependant could have a dependant's unsecured pension fund from birth. Where a member of age 75 or older has an alternatively secured pension fund then they will be required to use the relevant annuity rate for a 75-year old.)
• The tables will also be applicable for contracted-out rights and the tables should be based on non-impaired life annuities.

There is to be a full review of the tables every five years. Additional 'out-of cycle' reviews will also be possible should circumstances warrant this.