RPSM10104870 - Technical Pages: Death benefits: Pensions: Dependants' drawdown pension: General
The following guidance has been written from the dependant’s perspective
Guidance for all types of dependants’ drawdown pensions
Which schemes can pay me a dependants’ drawdown pension?
Who can be paid a dependants’ drawdown pension?
When can a dependants’ drawdown pension be paid?
What are the different types of dependants’ drawdown pension?
Is there a minimum amount of dependants’ drawdown pension?
Is there a maximum amount of dependants’ drawdown pension?
What happens if I get more than the maximum amount of dependants’ drawdown pension?
Can I have a tax free lump sum when I start to take a dependants’ drawdown pension?
How do I get a dependant’s drawdown pension into payment?
Do I have to use all of the funds available to give me a dependants’ pension to provide a drawdown pension?
Is my dependants’ drawdown pension tested against the lifetime allowance?
How is my drawdown pension taxed?
Can I transfer a dependants’ drawdown pension in payment to another pension scheme?
I am currently receiving a dependants’ scheme pension/have purchased a dependants’ lifetime annuity. Can I switch to dependants’ capped drawdown?
Which schemes can pay me a dependants’ drawdown pension?
| [s167] |
A dependants’ drawdown pension can only be paid from an other money purchase arrangement or a cash balance arrangement. A defined benefits arrangement cannot pay a dependants’ drawdown pension. So if the pension scheme that is paying your dependants’ pension does not have an other money purchase arrangement or cash balance arrangement you cannot have a dependants’ drawdown pension.
A pension scheme does not have to pay pension in the form of a dependants’ drawdown pension. Many pension schemes do not offer this option.
Who can be paid a dependants’ drawdown pension?
| [Para 16 Sch 28] |
Only a dependant of the scheme member can get a dependants’ drawdown pension.
Under the tax rules you can be a paid a dependants’ drawdown pension if
- You were married to, or a civil partner of, the member when they died,
- If the scheme rules allow for this, you were married to or a civil partner of the member when they first started drawing pension from that pension scheme,
- You are a child of the member and less than 23 years old,
- You are a child of the member aged 23 or over and when the member died you were dependant on them because of a physical or mental impairment, or
- You were neither married to, a civil partner of or a child of the member but when the member died you were
- financially dependent on the member,
- in a financial relationship with the member of mutual dependency, or
- dependent on the member because of a physical or mental impairment.
More information on who is a dependant can be found at RPSM10104040.
When can a dependants’ drawdown pension be paid?
| [s167(2)] |
A dependants’ pension can only be paid following the death of a member. There is no lower or upper age limit for paying a dependants’ drawdown pension.
What are the different types of dependants’ drawdown pension?
| [Para 18 Sch 28] |
A dependants’ drawdown pension comes in two basic forms
- dependants’ income withdrawal, and
- a dependants’ short-term annuity.
With dependants’ income withdrawal your pension is paid directly from the pension scheme.
With a dependants’ short-term annuity you use some of your dependants’ drawdown pension fund to buy an annuity contract from an insurer that will pay you a certain income each year for a fixed period of up to five years.
There are two forms of income withdrawal, subject to different rules:
- capped drawdown, and
- flexible drawdown.
Provided the scheme offers the option, from any other money purchase arrangement or cash balance arrangement you can have your dependants’ drawdown pension paid as
- capped drawdown,
- capped drawdown and dependants’ short-term annuity,
- dependants’ short-term annuity,
- flexible drawdown, or
- flexible drawdown and dependants’ short-term annuity.
Find out more about capped drawdown on RPSM10104880.
Find out more about flexible drawdown on RPSM10104940.
Find out more about dependants’ short-term annuities on RPSM10104990.
Is there a minimum amount of dependants’ drawdown pension?
No.
Is there a maximum amount of dependants’ drawdown pension?
| [s167 Pension death benefit rule 4] |
This depends on whether you are taking your dependants’ drawdown pension as dependants’ capped drawdown or dependants’ flexible drawdown.
If you are taking your dependants’ drawdown pension as capped drawdown there is a limit on the amount of pension you can take each year from each pension arrangement providing dependants’ capped drawdown pension. This limit applies to the total payments taken as dependants’ capped drawdown and dependants’ short-term annuities from the arrangement.
If you are taking your dependants’ drawdown pension as flexible drawdown this limit does not apply to the pension arrangement providing the flexible dependants’ drawdown pension. You can take as much pension as you like from a pension arrangement using flexible drawdown.
You can only take your pension using flexible drawdown if certain conditions are met.
Find out more about flexible drawdown on RPSM10104940.
Find out more about the maximum amount of drawdown pension you can get each year onRPSM10104890.
What happens if I get more than the maximum amount of dependants’ drawdown pension?
| [s160(2)] |
If your income withdrawal plus any dependants’ short-term annuity payments for an arrangement are more than your maximum dependants’ drawdown pension for a drawdown year the amount over your limit will be classed as an unauthorised payment. You will have to pay a tax charge of 40 per cent of the unauthorised payment. If the unauthorised payment is very large you may have to pay an extra 15 per cent tax charge. In addition to your tax charge your scheme administrator will have to pay a scheme sanction tax charge of at least 15 per cent of the unauthorised payment.
Can I have a tax free lump sum when I start to take a dependants’ drawdown pension?
No.
How do I get a dependant’s drawdown pension into payment?
| [Para 22 Sch 28] |
You start a dependants’ drawdown pension by ‘designating’ part or all of your dependants’ pension funds to provide you with a dependants’ drawdown pension. This means that you tell your scheme administrator that you want to use £X to provide you with a drawdown pension. The funds that you have put aside (designated) to provide dependants’ drawdown pension will form your ‘dependants’ drawdown pension fund’. Your dependants’ drawdown pension will be paid from that dependants’ drawdown pension fund.
Each pension scheme that offers dependants’ drawdown will have its own processes for documenting how you designate benefits into dependants’ drawdown pension.
Having designated your funds into dependants’ drawdown pension you can choose how much and when you will be paid a dependants’ drawdown pension. You can choose to get regular payments or just draw funds when you want to.
Do I have to use all of the funds available to give me a dependants’ pension to provide a drawdown pension?
No. If your scheme allows you can use part of your funds to provide a dependants’ drawdown pension and another part to provide a dependants’ pension in another form, for example a dependants’ annuity.
Is my dependants’ drawdown pension tested against the lifetime allowance?
| [s216] |
No.
How is my drawdown pension taxed?
[s579A - S579D ITEPA 2003][S683 ITEPA 2003][Reg 11 Income Tax (Pay As You Earn) Regulations 2003 - SI2003/2682]
You are liable to income tax on any payment of dependants’ drawdown pension you get. If your dependants’ drawdown pension is being paid as either capped drawdown or flexible drawdown tax is due on any payments you receive in a tax year. If your dependants’ drawdown pension is being paid using a short-term annuity the taxable amount is the amount due to be paid in the tax year under the terms of the contract, even if you don’t get the payment in the tax year.
The pension scheme (or the insurer paying the short-term annuity) should deduct the tax due using the PAYE system before making the payment.
Can I transfer a dependants’ drawdown pension in payment to another pension scheme?
[Reg 12 The Registered Pension Schemes (Transfer of sums and assets) Regulations - SI 2006/499]
Yes, you can transfer your benefits. However the transfer needs to meet the following conditions.
- The transfer must be made to a new ‘empty’ pension arrangement
- The benefits must be provided on a like for like basis. So, for example, if your dependants’ drawdown pension is being provided as a dependants’ short-term annuity it must continue to be paid as a dependants’ short-term annuity or if your dependants’ drawdown pension is being provided as income withdrawal it must continue to be paid as income withdrawal.
If the transfer does not meet these conditions it will be an unauthorised payment. This means you will have to pay a tax charge of 40 per cent of the amount transferred. If the amount transferred is 25 per cent or more of the value of your funds in the original pension scheme the amount of your tax charge will be 55 per cent of the amount of the transfer. In addition to your tax charge your transferring scheme administrator will have to pay a scheme sanction tax charge of at least 15 per cent of the unauthorised payment.
If your dependants’ drawdown pension started on or after 6 April 2011 the maximum amount of dependants’ drawdown pension you can get will not change on the transfer.
If your dependants’ drawdown pension started before 6 April 2011 the transfer can trigger a review of the maximum amount of dependants’ drawdown pension you can get.
I am currently receiving a dependants’ scheme pension/have purchased a dependants’ lifetime annuity. Can I switch to dependants’ capped drawdown?
| [Paras 16-17 Sch 28] |
No. You cannot convert your existing dependants’ scheme pension or dependants’ lifetime annuity into drawdown pension.
| Glossary (RPSM20000000) |
