(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)
The lump sum benefit can be paid to the ex-spouse member’s
be distributed at the discretion of the scheme administrator.
The rules must clearly identify the class of beneficiary to whom
the lump sum is distributable.
The ex-spouse member can nominate any person he or she
chooses, including such bodies as charities, societies or clubs.
The beneficiary need not be limited to a dependant of the deceased
or other individual.
The lump sum should be paid shortly after the ex-spouse
member’s death. However, if the administrator finds it
difficult to determine or locate the beneficiary, the money can
remain within the scheme for no more than 2 years from the
ex-spouse member’s death. If the lump sum cannot be
distributed by the end of this 2-year period, it must be withdrawn
from the scheme and held under separate trusts in favour of the
ultimate beneficiaries; or be paid to the deceased member's
personal representatives. The reason for this 2-year time limit is
that for as long as the unpaid lump sum benefit is held under the
scheme it will attract tax relief and this is not allowed to
continue indefinitely.
Where scheme rules provide for payment of the lump sum to the
legal personal representative or a nominated beneficiary, other
than a widow or widower, there may be a liability to Inheritance
Tax (IHT). Whereas IHT is not likely to apply where the lump sum is
distributed by the administrator under a discretionary power. Any
enquiries about IHT liabilities should be referred to IR(Capital
Taxes).
