RPSM09100171 - Technical Pages: Member benefits: Overview: Payments: Other transactions regarded as payments: Assignment of death benefits

Assignment of death benefits

An assignment of benefits or rights can be treated as an unauthorised payment – see RPSM09100170. Where a member alters his or her arrangements in a registered pension scheme for determining who receives death benefits under a term assurance policy, such alteration could be an assignment. However, the circumstances under which that assignment is made could mean that it is not treated as an unauthorised payment.

The normal method of transferring a policy with death benefits would be by assignment. If there is a transfer of death benefits to a trust, therefore, the most probable analysis would be that this is by assignment. Such an assignment would not be regarded as an assignment of any right in respect of sums or assets held for the purpose of a registered pension scheme. However, it is still possible for the assignment to be treated as an unauthorised payment but only where there is an assignment by the member and the right to receive those benefits under the pension scheme is a prospective entitlement of a dependant of the member (by definition death benefits cannot be an actual or prospective entitlement of the member, in respect of whose death the benefits are paid).

By way of illustration, here are a number of examples of genuinely commercial transactions which would not be treated as unauthorised payments.

Death benefits go from being paid at discretion of scheme administrator to being paid at discretion of trustees

Discretionary beneficiaries have no rights to receive sums and assets, just a hope of receiving something if the trust is exercised in their favour. The beneficiary's hope of receiving death benefits at the discretion of the scheme administrator is not therefore a ‘prospective entitlement’ to those rights. When assigned from a scheme in which the death benefits are paid at the scheme administrator's discretion to a discretionary trust, such an assignment would not be regarded as an unauthorised payment.

By contrast, if death benefits under the policy are to go to a named beneficiary who is a dependant, such beneficiary would seem to have a ‘prospective entitlement’ and an assignment which overrode those rights would be regarded as an unauthorised payment.

Death benefits go from being payable to the member's estate to being paid at discretion of trustees

Individuals presumptively entitled to the member's estate have no right of property in it. They may have a ‘mere expectancy’ but this does not amount to a ‘prospective entitlement’. While the transfer may be by way of assignment, what is assigned is less than a ‘prospective entitlement’ and such an assignment would not be regarded as an unauthorised payment.

Discretionary trust to which rights to death benefits are transferred includes a lender or the member's company as a beneficiary

The same reasoning as above applies in relation to assignments to all discretionary trusts, whoever the potential beneficiaries under the trust are. Such assignments would not be regarded as unauthorised payments.

Assignment of rights to death benefits as security for a loan

Assuming the lender is not a dependant of the member, whether or not there is a deemed unauthorised payment would be determined by whether the rights to death benefits were ‘prospective entitlements’ of a dependant of the member when they were assigned – see above for further guidance on that issue.

The lender taking a charge over the death benefits instead would not be an assignment of the rights to those death benefits so would not be regarded as an unauthorised payment.