RPSM10105260 - Technical Pages: Death benefits: Lump sums: Member dies aged under 75: A trivial commutation lump sum death benefit

A trivial commutation lump sum death benefit

Where a dependant of a member who died before reaching age 75 becomes entitled to authorised pension death benefits and the level of those benefits is within a triviality limit, the scheme may provide for those pension entitlements to be commuted and paid as a lump sum (along with any lump sum death benefit entitlement). Such a combined lump sum death benefit payment is called a trivial commutation lump sum death benefit.

However, a trivial commutation lump sum death benefit may only be paid where both

• the member giving rise to the entitlement died before reaching age 75, and
• the payment is actually made before the date the member would have reached their 75^th birthday.

The payment must extinguish the dependant’s entitlement to any form of authorised death benefit under the registered pension scheme in respect of the deceased member. This is all entitlements to a pension death benefit, or lump sum death benefit, under all arrangements the member held under that scheme.

A trivial commutation lump sum death benefit can only be paid to a dependant entitled under the scheme to a pension death benefit in respect of the member.

A trivial commutation lump sum death benefit may be paid from any form of arrangement.

Triviality measure

To be a trivial commutation lump sum death benefit the level of payment should not be more than 1% of the standard lifetime allowance on the date the lump sum is paid, i.e. £15,000 for 2006/07. Any amount paid over and above the 1% of standard lifetime allowance measure will not be a trivial commutation lump sum death benefit. Any excess will become either

• another form of authorised member payment (if it falls within the relevant definition), or
• an unauthorised member payment, and be taxed as such - see RPSM10100120.

Taxation

A trivial commutation lump sum death benefit is taxable as pension income on the recipient of the dependant receiving the payment - see RPSM04101140.