RPSM10104980 - Technical Pages: Death benefits: Pensions: Dependants' drawdown pension: Dependants’ flexible drawdown: Examples

The following guidance has been written from the dependant’s perspective

Dependants’ flexible drawdown pension: Examples

Example 1

Mark’s wife died and as a result Mark is given a dependants’ pension. Mark chooses to take this pension as a dependants’ drawdown pension. Mark also gets other pension in his own right. These are as follows:

• a pension from a final salary pension scheme of £13,000 per year, and
• basic state pension of £5077.80 per year (£97.65 a week)

Mark’s other pension sources are only £18,077.80 per year. This is less than £20,000 minimum income requirement for flexible drawdown. Mark cannot take his dependants’ drawdown pension as flexible drawdown.

Example 2

John is 61 years old and is being paid a pension of £25,000 each year from his defined benefits scheme. John’s wife recently died and so John has become entitled to a dependants’ pension. This dependants’ pension is provided from a other money purchase arrangement. John decides to take this pension as dependants’ drawdown pension.

As John is already getting £25,000 pension from a defined benefits scheme he meets the £20,000 flexible drawdown minimum income requirement. John completes a flexible drawdown declaration for the dependants’ pension. The scheme administrator accepts the declaration.

John decides to take all his dependants’ drawdown pension as one payment. He can do this as this drawdown pension is being paid using flexible drawdown.

The scheme administrator pays John deducting tax due using the PAYE system.

Example 3

Mary is 71 and receives the following pensions

• a lifetime annuity of £16,000 per year, and
• a basic state pension of £5,000 per year

Mary’s husband died three years ago with uncrystallised rights of £100,000 in a other money purchase arrangement. Mary chose to use these funds to provide a dependants’ drawdown pension.

Mary ‘s £21,000 pensions that she gets in her own right means that she meets the flexible drawdown minimum income requirement. Mary signs the required declaration and her dependants’ drawdown pension is now in flexible drawdown. Mary can take as much or as little dependants’ pension as she likes.

Mary decides to take the maximum dependants’ drawdown pension that she can in the first year while remaining a basic rate tax payer. She continues in this way each year taking the maximum that she can without becoming a higher rate taxpayer until the fund is exhausted. Mary’s scheme deducts the tax due on the flexible drawdown payments using PAYE.