RPSM10104430 - Technical Pages: Death benefits: Pensions: Dependants’ unsecured pension: Designation of funds

This guidance only covers individuals who became entitled to dependants’ unsecured pension before 6 April 2011.

If an individual became entitled to their pension on or after 6 April 2011 then see the guidance on dependants’ drawdown pensions at RPSM10104850.

Designation of funds to provide a dependants’ unsecured pension

As with the member pension equivalents, the legislation talks in terms of funds being designated to provide a dependants’ unsecured pension, with the funds so designated becoming what is called the dependants unsecured pension fund.

This designation will therefore occur some time after the date the member died.

Entitlement to a dependants' unsecured pension arises at the point of designation. There is no backdating of payment or entitlement to the point the member died. If all the dependants of the member die before funds are designated then the funds may in certain circumstances be distributed as a lump sum death benefit.

The three examples on RPSM10104910, RPSM10104920 and RPSM10104930 illustrate this point.

[Para 22(1) to (3) and 25(2)(b) and (3), Sch 28][Paras 21 and 23, Sch 10, FA 2005] 

Once sums or assets have been designated as part of a dependants’ unsecured pension fund (what the legislation calls ‘dependant-designated funds’), any capital growth or income generated from such sums or assets are also treated as being part of that fund.

Where

• assets are purchased at a later date from such funds, or
• sums are generated by the sale of assets held in such funds,

those replacement assets or sums also form part of the dependant’s particular pension fund, as does any future growth or income generated by those replacement assets or sums).

Once funds have been designated into dependant’s unsecured pension it is not possible to reverse the designation; for example, it is not possible to reverse the original decision and opt instead for an unsecured pension fund lump sum death benefit.

Once funds are subsequently applied from the designated funds to purchase a dependants’ annuity contract from an insurance company, or are applied to provide a dependants’ scheme pension, those funds are no longer part of the dependants’ unsecured pension fund.

Once funds are used to purchase a dependants’ short-term annuity contract or are applied in paying income withdrawal to the member, those funds are no longer part of the dependants’ unsecured pension fund.