RPSM10105130 - Technical Pages: Death benefits: Lump sums: Member dies aged under 75: Types of lump sum treated as a defined benefits lump sum death benefit

The types of lump sum benefits that are treated as a defined benefits lump sum death benefit

Where the amount of the lump sum paid on a member’s death before age 75 is based on earnings, service or another factor apart from the amount available to provide the benefit then the benefit will be a defined benefit and provided from a defined benefits arrangement.

Examples of a defined benefit lump sum death benefit are

• a multiple of earnings, e.g. 2 x final salary
• a multiple of service, e.g. £500 for each year of service with the employer, or
• a multiple of another factor e.g. 3 x prospective pension, or 10% of the employer’s profits in the accounting period before the member’s death.
• a lump sum of a fixed amount of benefit e.g. £100,000.00 even if provided by a life cover policy.
• However a fixed amount of say £100,000 that is paid out on death but which is not expressed in benefit terms and might be paid as either a pension or a lump sum (i.e. where the form of benefit has yet to be decided on or after death), is not a defined benefits lump sum death benefit but a cash balance benefit.