RPSM10104450 - Technical Pages: Death benefits: Pensions: Dependants’ unsecured pension: Payment rules

This guidance only covers individuals who became entitled to dependants’ unsecured pension before 6 April 2011. If the member who died reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.

If an individual became entitled to their pension on or after 6 April 2011 then see the guidance on dependants’ drawdown pensions at RPSM10104850. .

Rules which apply to the payment of a dependants’ unsecured pension

The same rules govern the payment of a dependants’ unsecured pension as with the payment of a member’s unsecured pension. These are that

• the dependants’ unsecured pension fund may be used to purchase a dependants’ annuity or, where the scheme allows, be applied to provide a dependants’ scheme pension at any time,
• a maximum level of dependants’ unsecured pension payable is set at the point entitlement to the dependants’ unsecured pension arises, and this applies for the next 12-month period and all following 12-month periods until a review occurs or payments must stop (see RPSM10104470),
• that maximum is calculated in the same way as with member’s unsecured pension, but by reference to the dependant’s sex and age (age is the only factor for those under 23), and is also reviewed in the same way, that is

• • every five years or earlier if the scheme administrator agrees to a request from the dependant for an earlier review (see RPSM10104485)
  • where a dependants’ annuity is purchased or dependants’ scheme pension is provided from the dependants’ unsecured pension fund,
  • where a pension sharing event occurs, or
  • where additional fund designation occurs (see RPSM10104480),

• no minimum payment needs to be paid in each 12-month pension year,
• any payment made which exceeds the maximum permitted is an unauthorised member payment and is taxed on the recipient of the payment in the same way as described inRPSM09102130, and
• dependants’ unsecured pension payments must stop when the dependant reaches age 75 or, if earlier, when they die. A dependants’ short-term annuity cannot be purchased where the term of that contract includes the date of the dependant’s 75^t h birthday, or which allows continued payment where the dependant dies - see RPSM10104460.

Differences between the rules governing a dependants’ unsecured pension and a member’s unsecured pension

Unlike a member’s unsecured pension, the designation of funds to provide a dependants’ unsecured pension

• does not generate a pension commencement lump sum entitlement, and
• is not within benefit crystallisation event 1 and does not trigger a lifetime allowance test.

Pension years

The maximum initially calculated applies for the 12-month period running from the initial designation (or entitlement) date, and for every following 12-month period until a review is triggered. These 12-month periods are called unsecured pension years in the legislation (but simply pension years in this manual).

Once a dependants' unsecured pension fund has been created, the pension years are fixed from the date of that initial designation. They do not change, even where a review of the maximum is triggered (see RPSM10104480). The only occasion when pension year structure is interrupted is where the dependant dies or reaches age 75 (see RPSM10104460).