PSI11.4.4 - Benefits on Death in Service: Death in Service after Normal Retirement Date - Death in Retirement - Benefits Not Yet Taken

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

As an alternative to PSI11.4.2(a), many schemes give a lump sum death benefit when an employee dies in service after NRD, based on the amount the employee would have received if he or she had retired on the day before his or her death. In such schemes this formula is applied to all deaths regardless of whether or not the employee took any benefits at NRD.

If an employee has deferred all benefits until actual retirement but dies earlier in service his or her lump sum death benefit can be computed as either:

1. 5 x annual amount of the whole accrued late retirement pension, or
2. The aggregate of the lump sum or commutation payment he or she could have drawn had he or she retired on the preceding day, plus 5 x the uncommuted balance of the accrued pension.

Formula b. will always give a slightly greater lump sum than a.

Example

Maximum approvable pension = £8,000
Maximum approvable lump sum = £18,000 (pension equivalent at say 9:1 = £2,000)
a. would give 5 x £8,000 = £40,000
b. would give £18,000 plus 5 x residual pension of £6,000 = £30,000, total = £48,000.

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