PSI12.2.19 - Benefits on Death after Retirement: Lump Sum Benefits and Pension Guarantees - Guarantee payments - Ten Year Guarantees

(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)

[PN12.9]

Ten year pension guarantees have drawbacks which make them uncommon. They are expensive to provide. Our practice does not permit payment of an immediate lump sum where the guarantee exceeds 5 years. And payment of a widow(er)’s and/or dependant’s own right pension cannot start until the guarantee period has ended (see PSI12.1.30a). This latter condition is contrary to the Social Security Pensions Act 1975 which requires a contracted-out scheme to start paying a widow(er)’s pension no later than 26 weeks after the member’s death.

Therefore a contracted-out scheme cannot give a pension guarantee longer than 5 years except where the scheme rules provide for that part of the guarantee payment which is equal to the widow(er)’s pension to be paid to her/him as of right. Any balance of the guarantee then remaining may be distributed under discretionary trusts (see PSI12.2.23).

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