RPSM09101290 - Technical Pages: Member benefits: A secured pension: Scheme pension: Overview: Pension protection

This guidance only covers the position where the member died before 6 April 2011. If the member died on or after 6 April 2011 also see RPSM10106000.

A scheme pension and pension protection

A registered pension scheme may provide a member with pension protection in connection with their scheme pension. This means that they guarantee that if the member dies before their 75^th birthday, and has not received a certain total level of scheme pension by that time, they will pay the balance as a lump sum on the member’s death. No such benefit can be paid if the member dies on or after reaching their 75^th birthday.

Where the lump sum is paid in respect of a scheme pension from a defined benefits arrangement it is referred to as a pension protection lump sum death benefit. This payment is subject to a 35% tax charge, payable by the scheme administrator. Such a lump sum may be paid only where the member has specifically stated that any lump sum death benefit is to be treated as a pension protection lump sum death benefit. Otherwise, it will be treated as a defined benefits lump sum death benefit.

Where the lump sum is paid in respect of a scheme pension from a money purchase arrangement it is referred to as an annuity protection lump sum death benefit. This payment is again subject to a 35% tax charge, payable by the insurance company or scheme administrator.

The payment of pension protection and annuity protection lump sum death benefits are not benefit crystallisation events.

RPSM09101300 gives information on the maximum amount of pension protection.