RPSM10105155 - Technical Pages: Death benefits: Lump sums pre 6 April 2011: member dies aged under 75: Difference between a defined benefits and a pension protection lump sum death benefit

This guidance only covers the position where the member died before 6 April 2011. If the member died on or after 6 April 2011 see RPSM10106000.

The differences between a defined benefits lump sum death benefit and a pension protection lump sum death benefit

A pension protection lump sum death benefit can only be paid from crystallised funds as it represents the protection of scheme pension payments. There is no such restriction on the defined benefits lump sum death benefit.

There is no limit on the amount of defined benefits lump sum death benefit that may be paid. The amount of the pension protection lump sum death benefit is limited (see RPSM10105170).

The pension protection lump sum death benefit is not tested against the lifetime allowance, whereas the payment of a defined benefits lump sum death benefit is a benefit crystallisation event and is tested against the lifetime allowance.

If the amount of the defined benefits lump sum death benefit is below the member’s available lifetime allowance it is paid tax free. Any amount paid over the member’s available lifetime allowance will be taxable, giving rise to a lifetime allowance charge of 55%.

The whole of the pension protection lump sum death benefit is taxable at a rate of 35%.