RPSM10100080 - Technical Pages: Death benefits: Overview: lump sum death benefits on member’s death age 75 or more

This guidance only covers the position where the member died before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 please also read the guidance at RPSM17100000 onwards.

If the member died on or after 6 April 2011 see RPSM10106000.

Restricted lump sum death benefits where the member dies after reaching age 75

Once the member has reached their 75th birthday any benefit provision must be as a secured pension. (Where benefits are provided from a money purchase arrangement this can also be as an alternatively secured pension.)

The member loses the right to a tax-free pension commencement lump sum (and most of the other authorised lump sum benefits) at this date. All existing rights will have been tested for lifetime allowance purposes by that date.

The authorised death benefit rules reflect these restrictions. The main consequence is that the payment of a lump sum death benefit is generally lost under a registered pension scheme once the member survives past their 75th birthday. This restriction maintains the principle that pension saving is given tax relief in order to provide an income in retirement for the member which, on death, may continue to be paid to any dependants. It is not a route for conserving and passing on capital.

Subject to the transitional protection for continued life cover for members who had reached age 75 before they died, described below, a lump sum death benefit may only be paid in three circumstances where the member dies on or after age 75. These are where

• a registered pension scheme is being wound-up and the dependant’s pension entitlement is deemed to be of a trivial amount (and a winding-up lump sum death benefit is paid - see RPSM10105510), or
• the member dies on or after age 75 whilst entitled to an alternatively secured pension under a money purchase arrangement and has no dependants at that time when the fund may be used to provide either a charity lump sum death benefit or where the member died before 6 April 2007, a transfer lump sum death benefit, (see RPSM10105310 to RPSM10105430 for more details)..
• a lump sum is paid under a 5 year pension guarantee, the right to which was in existence on 5 April 2006 - see RPSM10105530.

The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI2006/572 

Article 6 of the above Order allows a lump sum death benefit to be paid in respect of a member who had reached age 75 before they died. This lump sum is known as a ‘life cover lump sum’. See RPSM10105440 for more details.