RPSM10104050 – Technical Pages: Death benefits: Pensions: Main principles: Payment of a guarantee
Payment of a guarantee on the death of the member
| [s165(1), Pension rule 2][s172(7)] |
A
registered pension scheme may provide a member
with a term certain guarantee for up to ten years when the member
first becomes entitled to a
scheme pension or where entitlement was
established before 6 April 2007 and the member died before 6 April
2007 from an
alternatively secured pension under an
arrangement under the scheme (see
RPSM09101280 and
RPSM09103120).
This means that the scheme guarantees to continue paying the
pension entitlement for the given term, whether the member dies
within that period or not.
The same term certain guarantee can also be provided when a
lifetime annuity or
short-term annuity is purchased under a
money purchase arrangement. This will of course be
costed for in the purchase price of the annuity.
RPSM09101780 and
RPSM09102240 give more details on
guaranteeing lifetime and short-term annuities.
The guarantee period starts on
- scheme pension: the date the member first becomes entitled to receive that pension income benefit,
- annuity: the date the member first becomes entitled to receive that annuity income benefit, and
- alternatively secured pension: the point at which the fund’s assets and sums are ‘designated’ as available for the payment of that pension. This will normally be the member’s 75th birthday - see RPSM09103120.
Who the guarantee may be paid to
Payments under a term certain guarantee need not be paid to a
dependant of the member, nor be limited to one person. Scheme rules
permitting, the payments may also be assigned in that period by
Will, or by the individual’s personal representatives in the
distribution of the individual’s estate.
The continuing payments may not be commuted and paid as a
lump sum.
Termination of a guarantee before the end of the term certain period
| [Para 2(6) and 3(2), Sch 28] |
A registered pension scheme or annuity contract may provide
for any guarantee linked to a scheme pension or lifetime annuity
entitlement to cease before the end of the term-certain period of
guarantee, if during that period the recipient of the guarantee
either
- marries,
- reaches the age of 18, or
- ceases to be in full-time education.
Taxation of guarantee payments
Guaranteed payments made after the death of the member are
taxable as ‘pension income’ on the recipient through
PAYE in exactly the same way as the member was taxed on the earlier
payments.
The taxable pension income for a tax year will be the full
amount of pension/income that accrues in that year under the terms
of the scheme or contract, irrespective of when any amount is
actually paid.
| Glossary ( RPSM20000000) |
