PSI25.2.13 - Flexibility in Pension Provision – Annuity Deferral/Income Drawdown - Death of a Member during Income Drawdown

(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)

Where a member dies during income drawdown, he or she is treated as having died in retirement (except where AVC benefits have come into payment before employer funded benefits - see PSI25.3.11) The options available are set out in PSI25.2.14 -16

Where, on the death of the member during the deferral period, an annuity is to be provided for a surviving spouse and/or dependant, each such survivor may choose to defer the annuity purchase and take income withdrawals. A survivor will not be able to defer the annuity purchase if he or she is aged 75 or more. The annuity must be purchased before the earlier of the survivor's 75th birthday and the date on which the deceased member would have attained that age.

Where a survivor dies having previously taken income drawdown, any remaining funds which had related to that survivor should be dealt with in accordance with the normal rules.

The initial maximum and minimum income withdrawal limits applicable to a survivor will be calculated by reference to the Government Actuary's current table and the amount available for that 'survivor's' annuity purchase as at the date of death of the member.

These initial income withdrawal limits shall apply for the 3 years from the date of death but will be re-calculated for each subsequent 3 year period, again by reference to the Government Actuary's current table and the 'survivor's' fund remaining at the first day of each 3 year period.

A survivor whose annuity entitlement is not for life e.g. it is to cease on marriage, or on attainment of age 18, or on cessation of full-time education, may nevertheless opt for annuity deferral and income withdrawal. If the annuity has still not been purchased at the date entitlement ceases, the remaining annuity fund will be forfeit and will be used to meet general administration expenses of the scheme.

Any remaining funds after the payment of pension or lump sum death benefit (if any) should be dealt with as if it were a surplus on the member's retirement.