RPSM10104310 – Technical Pages: Death Benefits: Pensions: Dependants' annuity: Provision

Provision of a dependants’ annuity

A dependants’ annuity contract can only be purchased

• by a money purchase arrangement, and
• from an insurance company.

Purchase of a dependants’ annuity after the death of the member

A dependants’ annuity contract may be purchased following the death of the member from any uncrystallised funds, unsecured pension fund or alternatively secured pension fund remaining on the death of the member.

A dependants’ annuity may also be subsequently purchased from dependants’ unsecured pension fund or dependants’ alternatively secured pension fund, following a period of dependants’ unsecured pension or dependants’ alternatively secured pension entitlement.

Purchase of a dependants’ annuity in the member’s lifetime (a related dependants’ annuity)

A future dependants’ annuity may be provided for at the time the member purchases a lifetime annuity. This may be purchased either

• under the same contract providing the member’s lifetime annuity, with the annuity contract being written on a ‘joint life’ basis, or
• under a separate contract to the member’s lifetime annuity (whether with the same insurance company or not), but purchased within the seven days before or after the purchase of that lifetime annuity.

A dependants’ annuity purchased in these circumstances is referred to in the legislation as a ‘related dependants’ annuity’. An annuity providing for a future pension benefit to a dependant of a member that is purchased in the member’s lifetime but outside the above timeframe is not a dependants’ annuity.

A related dependants’ annuity contract should only provide a continuing dependants’ annuity to a person (or persons) who is (are) dependent on the member at the time of that member’s death. A person who was married to, of who was the civil partner of, the member at the time the member’s lifetime annuity was purchased may be treated as a dependant of the member at the time of their death, whether still married to or in a civil partnership with that person at that time or not (see RPSM10104020).

See also RPSM09104370 in relation to the purchase of a related dependants' annuity and the provision of a member’s pension commencement lump sum.

See RPSM11104530 for the implications for the member’s lifetime allowance of the purchase of a related dependants’ annuity.

Taxation

A pension paid from a dependants’ annuity is taxable as pension income on the recipient through PAYE (see RPSM04101020).