RPSM10104320 - Technical Pages: Death Benefits: Pensions: Dependants' annuity: Contract requirements

Requirements for an annuity contract to be a dependants’ annuity

To be a dependants’ annuity, an annuity contract must

• be purchased from an insurance company, as chosen by the member or dependant (see the guidance below on the open market option),
• be purchased either

• not provide for the direct or indirect payment of capital or pension payments triggered by the death of the dependant,
• be paid at least once a year, whether in advance or in arrears, and
• only provide for an amount to be paid each year to a dependant that either

The circumstances in which the annual rate of income provided by a dependants’ annuity contract may be varied are essentially the same as the circumstances where the income provided by a member’s lifetime annuity may be varied - see RPSM09101730 to RPSM09101750 (reading any reference to member as reading dependant except where specifically mentioned in the text). These circumstances include the application of a pension sharing order that reduces the income provided by a dependants’ annuity.

The open market option

The member or dependant must be given the opportunity to choose the insurance company the dependants’ annuity is purchased or provided from. This is often called an open market option.

Where the dependants’ annuity is secured with the member’s lifetime annuity the choice will be one for the member to make at the time of purchase. Where the annuity is being secured after the death of the member, the choice is that of the dependant.

If the member or dependant is not given the opportunity to choose their annuity provider, the resulting annuity contract does not satisfy the conditions to be a dependants’ annuity, as the legislation specifically requires that the member or dependant must have the opportunity to choose the contract provider.

If the member or dependant has the opportunity but fails to select an insurance company to provide the dependants’ annuity, the scheme administrator or scheme trustees may select the insurance company.