PSI25.3.12 - Flexibility in Pension Provision – Flexible Use of AVCs - Death of Member Before Taking AVC 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)

If the member dies before taking an AVC pension and before taking employer funded benefits - the existing rules on death in service will apply, as described in PSI part 11. The facility for the survivor to elect for drawdown benefits will also be available.

If the member dies before taking an AVC pension and after taking employer funded benefits there is a requirement for a second statutory surplus test under The Retirement Benefit Schemes (Restriction on Discretion to Approve)(Additional Voluntary Contributions) Regulations 1993 – SI 1993 No 3016. The second 'relevant' date being the date of death.

What this will mean is that where AVC funds were held to provide benefits for the member, any remaining funds can be refunded to the member's legal representative (subject to tax under section 599A, ICTA 1988), or used for the provision of widow's/widower's/dependant's benefits subject to Inland Revenue limits.

AVC funds which have been held to provide own right widow's/widower's/dependant's benefits should be tested against the benefit limit in the scheme rules. Any funds in excess of those needed to provide benefits up to the limit in the scheme rules may be refunded to the member's legal representative (subject to tax under section 599A, ICTA 1988), or used for the provision of further widow's/widower's/dependant's benefits subject to Inland Revenue limits.