RPSM10105230 - Technical Pages: Death benefits: Lump sums pre 6 April 2011: Member dies aged under 75: An unsecured pension fund 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.
An unsecured pension fund lump sum death benefit (paid where the member, or a dependant of the member, dies before age 75)
|[Para 17, Sch 29]|
An unsecured pension fund lump sum death benefit can only be paid from a money purchase arrangement where the member
- was in receipt of an unsecured pension from the arrangement at the time they died, and
- died before reaching their 75th birthday.
But if the member reached age 75 after 21 June 2010 the unsecured pension fund lump sum death benefit can be paid even if the member was 75 when they died.
No time limit for payment
There is no time limit as to when an unsecured pension fund lump sum death benefit can be paid following the death of the member. However, once funds have been effectively designated for the payment of a dependant’s unsecured pension, it is not possible to then reverse such a designation. For example, it is not possible to reverse the original decision and opt instead for an unsecured pension fund lump sum death benefit.
Where a dependant dies in receipt of a dependants’ unsecured pension
|[Para 17(2), Sch 29]|
If a dependant becomes entitled to a dependants’ unsecured pension following the death of the member, and they too die before reaching the age of 75, any remaining dependants’ unsecured pension fund left on their death may be paid as an unsecured pension fund lump sum death benefit. See RPSM10104530and the example in RPSM10104930.
But if the dependant reached age 75 after 21 June 2010 the unsecured pension fund lump sum death benefit can be paid even if the dependant was 75 when they died.
|[Para 11, Sch 31][s636A(4)(c), Chapter 15A ITEPA03][s206]|
Where an unsecured pension fund lump sum death benefit is paid the scheme administrator becomes liable to a charge to income tax at the rate of 35% on the level of payment made. This is referred to in the legislation as a special lump sum death benefits charge.
The special lump sum death benefits charge will not apply to any part of the lump sum that arises from the payment of a pension guarantee in existence on 5 April 2006 - see RPSM10105530.
This charge reflects the fact that the funds held in the unsecured pension fund have been designated to provide a pension benefit, and such pension payments would be charged to income tax. The designation of those funds will already have generated an entitlement to a tax-free pension commencement lump sum.
The scheme administrator will deduct the charge due before making the payment - see RPSM04101110.