RPSM10105170 - Technical Pages: Death benefits: Lump sums pre 6 April 2011: Member dies aged under 75: Maximum pension or annuity protection
Maximum pension or annuity protection lump sum death benefit
| [Paras 14 and 16, Sch 29] |
The maximum pension or annuity protection that can be provided is the capital value of the pension benefit that crystallises for lifetime allowance purposes at the time the entitlement to the actual pension benefit initially arose. This is
- for a scheme pension entitlement - the amount that crystallises through BCE 2, and
- for a lifetime annuity contract - the amount that crystallises through BCE 4, i.e. the purchase price of the annuity.
This maximum is not indexed in any way.
Where the scheme pension entitlement is secured with an insurance company, the lump sum may be provided for in that contract (or through another contract with the same or another insurance company), or may be paid separately by the scheme on the member’s death (where applicable). Either way the limit is the same.
The limit applies to the total pension protection benefits paid under the arrangement or annuity protection benefits paid under a contract.
Where an arrangement uses a mixture of methods to provide a scheme pension, e.g. an annuity contract and direct payment from the scheme, each payment type can pay pension protection but the total paid cannot be more than the maximum amount. So if, for example an arrangement used both an annuity contract and direct payment from the scheme to provide a scheme pension the annuity contract could pay the maximum pension protection leaving the scheme to pay no pension protection (or annuity protection) lump sum death benefit.
How maximum protection is defined in the legislation
The maximum level of pension protection lump sum death benefit or annuity protection lump sum death benefit that may be paid on the death of the individual is limited to a given maximum, represented through the formula
AC - AP - TPLS
AC = the amount crystallising for lifetime allowance purposes through BCE 2 or 4 at when the member became entitled to the scheme pension or lifetime annuity.
AP= the amount of scheme pension or lifetime annuity payments paid up to the point the member died.
TPLS = the amount of pension protection lump sum death benefit or annuity protection lump sum death benefit previously paid under the scheme (or by any insurance company that entitlement is secured with) in relation to the member’s scheme pension or lifetime annuity entitlement.
RPSM10105180 gives some examples.
Where a pension is in payment on 6 April 2006
Where a pension protection lump sum death benefit or annuity protection lump sum death benefit is being paid in respect of a pension that started to be paid before 6 April 2006 the definitions of ‘AC’ and ‘AP’ shown above are amended as follows.
AC = is the 25 times the annual rate of the pre 6 April 2006 pension (see RPSM11104930 and RPSM11104940).
AP = the amount of scheme pension or lifetime annuity payments paid from 6 April 2006 up to the point the member died.
| Glossary (RPSM20000000) |
