RPSM10104042 - Technical Pages: Death benefits: Pensions: Main principles: Dependants’ pensions -transitional

Payment of a dependant’s pension to a child aged 23 or over from a scheme that was in existence before 6 April 2006

[Paras 15(2)(c) & (d) Sch 28][Articles 34 - 34B The Taxation of Pension Schemes (Transitional Provisions) Order 2006 -SI 2006/572 as amended by SI 2009/1989]

A pension scheme that was deemed to be a registered pension scheme on 6 April 2006 (see RPSM02100020) may pay a dependant’s pension to a child of the deceased member, after that child has reached age 23, in a limited number of circumstances.

• The first of these initially concerns young adult children of the deceased member

• • continuing in further education or
  • suffering from certain health implications at the time the pension should otherwise stop,

• the second concerns other adult children of the deceased member, and relates to later financial dependence or inter-dependence, as might have arisen for example with children of the member taking on caring responsibilities in their adult years for the member up to the time when the member died.

The two categories are not necessarily mutually exclusive in all cases: some dependants might qualify under more than one category, though this is expected to be uncommon.

Neither of these facilities can be made available in newer or subsequent schemes except as a result of one or more ‘relevant block transfer(s)’ (described below) that effectively continue such rights.

1. Young adult children, with transitional protection

This provides that pensions may continue if the child is either:

• still in full-time education or undertaking vocational training, or
• where at the point of reaching the age of 23, or at the time of ceasing full-time education / vocational training, they were suffering from a physical or mental deterioration that was either serious enough to prevent them from following a normal employment, or which would seriously impair their earning capacity.

The particular requirements to qualify under the first category are as follows:

• (1A) either the member died before 6^t h April 2006, and the child’s pension was:

• • in payment before this date, or
  • was due to be paid,

• (1B) or the member’s pension was in payment on 5^t h April 2006, and the child was born before 5^t h April 2007. The latter date provides there can have been a potential expectation of benefit provision to an existing child on 6^t h April 2006, including pre-born children (the legislation covers the period of gestation with a 12 month window).
• Also, whether 1A or 1B above applies, in either case the “first scheme rules condition” must also have been satisfied, namely that: On 5^t h of April 2006, the rules of the pension scheme allowed a pension to be paid to a child of the member following the member’s death, until a time no later than when the child eventually ceased full-time education or vocational training. The time for payment could be capped at a point before the end of this education or training, or could be open up to the completion of the course.

To qualify for continued payment of a child’s pension after reaching age 23 under this provision, the circumstances of any given case must fully meet the requirements of at least one of the above circumstances.

2. Financially dependent adult children, e.g. certain carers, with transitional protection

This provides that a pension may be paid to an adult child dependant if both of the following conditions are satisfied:

• the first condition is that either:

• • (2A) the member’s pension was in payment before 2nd July 2008, or
  • (2B) the child’s pension (death benefit) was in payment on 1st July 2008, or
  • (2C) the child’s entitlement to the pension death benefit arose before 1st July 2008 (on or after the member’s death), or
  • (2D) the entitlement to the pension death benefit was subject to the discretion of the trustees of the scheme, and the discretion was capable of being exercised following the member’s death (in favour of the child) so that the entitlement could have arisen before 1^s t July 2008, and

• the second condition, known as “the scheme rules condition”, is that:

• • On the 5^t h April 2006, the rules of the pension scheme allowed a pension to be paid to a child of the member (following the member’s death) if, at the date of the member’s death, the child was financially dependent on the member (or their financial relationship was one of mutual dependence).

3. Continuing rights after relevant block transfers

Any of the above ‘transitional rights’, to have a dependant child’s pension paid after reaching 23 years of age without breaching the common age limit in the tax rules, are in the first instance rights that are specific to the schemes in which they originate.

In reality, benefit rights may sometimes transfer to another scheme. Depending on circumstances, this can be either as a transfer of the member’s rights before their death, or as a transfer of the dependant’s entitlement that arose on or after the death of the member. In either such case, the transitional protection described above will not apply in the receiving scheme, unless certain conditions are met.

In the case of 1 above (Article 34 - “Young adult children, with transitional protection”), the first requirement for this kind of protection, is that the conditions outlined under 1 above, were satisfied either:

• in the original scheme, or
• would have applied in the original scheme, were it not for the transfer. The transfer must also have been of the kind described below, and taken place after 5^t h April 2006.

In the case of 2 above, (Article 34A - “Financially dependant adult children”), the first requirement is that the conditions outlined under 2 above, were satisfied either:

• in the original scheme, or
• would have applied in the original scheme, were it not for the transfer. The transfer must have been of the kind described below, and taken place after the ‘relevant date’. The relevant date is:

• • in the case of 2A above, the later of the 6^t h April 2006, and the date the member’s (parent’s) pension came into payment,
  • in the case of 2B, 2C or 2D, the relevant date is the later of the 6^t h April 2006, and the date of the member’s (parent’s) death.

In both cases - the second requirement for this kind of protection to apply is that the receiving scheme meets the single condition for being a ‘qualifying transferee scheme’. That single condition is that transfer must qualify as a ‘relevant block transfer’ under these regulations.

A block transfer is to be understood in this context, in the same way as the block transfers described on page RPSM03106070, that is: where the member’s rights are accompanied by at least one other member’s rights moving at the same time, and subject to the same time limits on membership as are described on that page.

However, to be a ‘relevant block transfer’ both of the following further conditions must also be met:

• The transfer value being received, must have come either:

• • directly from the original pension scheme where the above protected rights originate, or
  • it must have come indirectly from the original pension scheme where the protected rights originate, having passed through one or more intermediate schemes before reaching the latest one, having enjoyed this same protection along the way, thanks to the earlier application of this or the preceding bullet, as appropriate, together with having met the following conditions along every part of the journey, including in the final receiving scheme.

• Following the transfer, the receiving scheme (which would include each intermediate scheme in a series of sequential transfers) must either:

• • provide the child with an entitlement to the payment of pension (i.e. make them a pensioner member), or
  • in the event that it was the parent who transferred into the receiving scheme before their death, that parent must have been admitted as a member of the receiving scheme, or
  • in the event that it was the parent who transferred into the receiving scheme before their death, and that parent made an irrevocable election designating part of the sums or assets representing their rights for the payment of a pension to the child, the child is then entitled to such payment from the receiving pension scheme following their parent’s death.