RPSM10104160 - Technical Pages: Death benefits: Pensions: Dependants' scheme pension: Limit in the post-death year

Limit on a dependants’ scheme pension in the post-death year

[Para 16B, Sch 28][Para 28, Sch 10, FA 2005]

The legislation governing the payment of a dependants’ scheme pension provides that where the member dies at or after the age of 75, the aggregate of any dependants’ scheme pension payable to all dependants from a registered pension scheme in the year after the member’s death (the post-death year) must not exceed the initial member pension limit.

Initial member pension limit

This is made up of three elements

  • either
  • if the member has died within 12 months of starting to receive a scheme pension, the amount of pension that would have been paid to the member in the 12 months from the date the member first became entitled to the pension had the member not died, or
  • if the member lived for more than 12 months of starting to receive a scheme pension, the aggregate of the scheme pension(s) that were paid to the member from the registered pension scheme (or by an insurance company) in the 12 month period immediately preceding the date of death (referred to in the legislation as ‘the pre-death year’), plus
  • the amount of scheme pension that would have been paid in that period if the member had drawn the scheme pension(s) to which he or she had a prospective entitlement under the registered pension scheme or associated contract with an insurance company, plus
  • where a tax-free lump sum had been paid in connection with the member’s scheme pension, 5% of the amount of the lump sum paid.

Why prospective entitlements are included in the initial member limit

Any prospective entitlement to a pension needs to be included in the initial member limit to cater for the situation where the member fails to crystallise benefits by age 75 under a defined benefits arrangement (or hybrid arrangement, where benefits may potentially be provided on a defined benefits basis).

Although those prospective defined benefit entitlements ‘crystallise’ for lifetime allowance purposes as the member reaches age 75 through benefit crystallisation event (BCE) 5 (see RPSM11104600), the member is not required under the legislation to draw those benefits at age 75. The member may therefore still have a prospective entitlement to a scheme pension after reaching age 75.

Why 5% of any tax-free lump sum paid is included in the initial member limit

This reflects the fact that the member’s scheme pension may have been commuted to provide a lump sum. This adjustment permits a dependants’ scheme pension to be paid on the basis of the gross pension payable to the member, that is, before the commutation.

Glossary ( RPSM20000000)

Home|Main Contents|Manual Contents

Previous Page|Next Page|Top|Menu