(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)
[PN6A.13]
Where an ex-spouse member dies after pension credit rights
have come into payment, a lump sum may be paid out under a 5 year
guarantee (see
PSI12.2.16). Such a lump sum
must not exceed the total of the instalments falling due after the
ex-spouse member’s death.
Where the ex spouse dies during the guarantee period and is
drawing the pension credit rights under an income drawdown
arrangement, the balance of instalments may be based on the amount
of pension the ex spouse would otherwise have been receiving if
he/she had opted for 100% withdrawal. For these purposes, 100% is
determined at the date of commencement of income drawdown
irrespective of any subsequent variations. Any undrawn amounts of
pension (that is, the difference between 100% withdrawal and the
amounts actually drawndown) for periods prior to the date of death
may be paid in addition.
Payments under a pension guarantee may normally be paid at
the trustees’ discretion. Whether the guarantee is paid as a
lump sum or in pension form, the recipients need not be the widow,
widower or dependants; but pensions must only be paid to
individuals, not bodies such as charities, societies and clubs.
The guarantee should be paid out 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distributed by the end of this 2-year period, it must be withdrawn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.
