RPSM10104470 - Technical Pages: Death benefits: Pensions: Dependants’ unsecured pension: Calculation of maximum payment

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.

Calculation of the maximum dependants’ unsecured pension payable

[Para 10(2) and 14, Sch 28][The Registered Pension Schemes (Relevant Annuities) Regulations 2006 - 2006/129] 

The maximum dependants’ unsecured pension payable from a money purchase arrangement is set at the point the dependant first becomes entitled to such a pension under the arrangement. It is set at the time funds are first ‘designated’ to provide that dependant with a dependants’ unsecured pension under that arrangement, rather than at the date the member died.

The maximum is calculated by the scheme administrator using special tables provided by GAD to find a basis amount (see RPSM09102330).

The initial basis amount is calculated by reference to a ‘relevant annuity’ calculation, undertaken in the same way as detailed in RPSM09102330, but by reference to

• the dependant’s age, sex (age is the only factor for those under 23) etc., and
• the level of dependants’ unsecured pension fund initially designated for that dependant.

This gives a measure of the annual level of lifelong annuity income that dependant could secure at that time with that dependants’ unsecured pension fund.

Any dependants’ unsecured pension paid to a child dependant (see RPSM10104040) can only be paid beyond age 23, if that benefit is being provided because of dependency due to physical or mental impairment (see the second bullet of paragraph 2 in RPSM10104040), or because the transitional conditions in RPSM10104042 are met. Since the majority of child pensions will end by age 23, the GAD table for children is designed to exhaust funds by that age, and ignores actual life expectancy for the given age group. Where the child’s pension is to be paid beyond the age of 23, there is no alternative table to be used. Any reviews for the basis amount falling before the child’s 23^r d birthday must use the GAD table for children with the ‘relevant annuity’ being determined accordingly. If a child’s pension is to continue beyond age 23, see RPSM10104440 regarding the practical handling of such ongoing pensions.

The annual maximum is 120% of the basis amount.

This maximum applies to the total of all payments made from the arrangement, whether through income withdrawals or paid through a dependants’ short-term annuity contract purchased from that dependants’ unsecured pension fund.

The maximum initially calculated applies for the 12-month period (pension year) starting from the initial designation (or entitlement) date, and for every following 12-month period until a review is triggered (see RPSM10104480).

Dependants’ pensions in payment on 5 April 2006 going forward as dependants’ unsecured pension

RPSM10104472 sets out the position for dependants’ pensions being paid as income drawdown, income withdrawal or via annuity purchase deferral before 6 April 2006.