RPSM17100060 - Technical pages: Treatment of persons at age 75: Lump sum death benefits

This guidance covers individuals who reached age 75 between 22 June 2010 and 5 April 2011.

For individuals who reached age 75 before 22 June 2010 or after 5 April 2011 see the guidance starting at RPSM09100000 and RPSM10100000.

Changes for the transitional period: lump sum death benefits

However the unsecured pension fund has been created, an unsecured pension fund lump sum death benefit may be paid in respect of income withdrawal to which the member was entitled under the arrangement at the date of death provided the individual dies before reaching the age of 77 and if applicable having reached age 75 no earlier than 22 June 2010. The lump sum will be liable to the special lump sum death benefits charge at a rate of 35%.

However the dependants’ unsecured pension fund has been created, an unsecured pension fund lump sum death benefit may be paid in respect of income withdrawal to which the dependant was entitled under the arrangement at the date of death provided the dependant dies before reaching the age of 77 and if applicable having reached age 75 no earlier than 22 June 2010. The lump sum will be liable to the special lump sum death benefits charge at a rate of 35%.

For those members or dependants that reach age 75 on or after 22 June 2010 the definition of an unsecured pension fund lump sum death benefit is amended to allow it to be paid so long as the unsecured pension fund endures up to the date of death of the member or dependant on or after 22 June 2010 and before reaching the age of 77.

What if a scheme has a rule which specifically does not offer lump sum death benefits beyond age 75?

It has been drawn to the Government’s attention that a number of money purchase arrangements under registered pension schemes may not offer lump sum death benefits from age 75 because of the tax rules. The transitional tax rules therefore include a statutory override which will allow the trustees or managers of a scheme with a scheme rule of this kind to treat a person as not having reached the age of 75 where that person does not reach age 75 until on or after 22 June 2010 and has not reached the age of 77. This will permit the payment of unsecured pension fund lump sum death benefits to continue on deaths up to the age of 77.

This override is restricted to scheme rules which because of the tax rules provide that lump sum death benefits in respect of income withdrawal cannot be paid beyond the age of 75. The override gives trustees and managers a discretion to provide or continue providing unsecured pension fund lump sum death benefits beyond age 75 and up to age 77. Since the override is not mandatory, there is no obligation on the trustees or scheme manager to do so.