Finance Act 2004

Part 2Lump sum death benefit rule

Defined benefits arrangements

Defined benefits lump sum death benefit

13For the purposes of this Part a lump sum death benefit is a defined benefits lump sum death benefit if—

(a)the member had not reached the age of 75 at the date of the member’s death,

(b)it is paid in respect of a defined benefits arrangement,

(c)it is paid before the end of the period of two years beginning with the day on which the member died, and

(d)it is not a pension protection lump sum death benefit, trivial commutation lump sum death benefit or winding-up lump sum death benefit.

Pension protection lump sum death benefit

14(1)For the purposes of this Part a lump sum death benefit is a pension protection lump sum death benefit if—

(a)the member had not reached the age of 75 at the date of the member’s death,

(b)it is paid in respect of a defined benefits arrangement,

(c)it is paid in respect of a scheme pension to which the member was entitled at the date of the member’s death, and

(d)the member has specified that it is to be treated as a pension protection lump sum death benefit (instead of a defined benefits lump sum death benefit).

(2)But if the amount of a lump sum falling within sub-paragraph (1) exceeds the pension protection limit, the excess is not a pension protection lump sum death benefit.

(3)The pension protection limit is—

Money purchase arrangements

Uncrystallised funds lump sum death benefit

15(1)For the purposes of this Part a lump sum death benefit is an uncrystallised funds lump sum death benefit if—

(a)the member had not reached the age of 75 at the date of the member’s death,

(b)it is paid in respect of a money purchase arrangement,

(c)it is paid before the end of the period of two years beginning with the day on which the member died, and

(d)it is paid in respect of relevant uncrystallised funds.

(2)“Relevant uncrystallised funds” means such of the sums and assets held for the purposes of the arrangement at the member’s death as—

(a)had not been applied for purchasing a scheme pension, a lifetime annuity, a dependants' scheme pension or a dependants' annuity, and

(b)had not been designated under the arrangement as available for the payment of unsecured pension.

(3)But if an amount falling within sub-paragraph (1) exceeds the permitted maximum, the excess is not an uncrystallised funds lump sum death benefit.

(4)The permitted maximum is the aggregate of—

(a)the amount of the sums, and

(b)the market value of the assets,

which constitute the relevant uncrystallised funds immediately before the payment is made.

Annuity protection lump sum death benefit

16(1)For the purposes of this Part a lump sum death benefit is an annuity protection lump sum death benefit if—

(a)the member had not reached the age of 75 at the date of the member’s death,

(b)it is paid in respect of a money purchase arrangement, and

(c)it is paid in respect of a scheme pension or lifetime annuity to which the member was entitled at the date of the member’s death.

(2)But if the amount of a lump sum falling within sub-paragraph (1) exceeds the annuity protection limit, the excess is not an annuity protection lump sum death benefit.

(3)The annuity protection limit is—

Unsecured pension fund lump sum death benefit

17(1)For the purposes of this Part a lump sum death benefit is an unsecured pension fund lump sum death benefit if—

(a)the member had not reached the age of 75 at the date of the member’s death, and

(b)it is paid in respect of income withdrawal to which the member was entitled under an arrangement at the date of the member’s death.

(2)A lump sum death benefit is also an unsecured pension fund lump sum death benefit if—

(a)it is paid on the death of a dependant of the member,

(b)the dependant had not reached the age of 75 at the date of the dependant’s death, and

(c)it is paid in respect of dependants' income withdrawal to which the dependant was entitled at the date of the dependant’s death in respect of an arrangement relating to the member.

(3)But if the amount of a lump sum falling within sub-paragraph (1) or (2) exceeds the permitted maximum, the excess is not an unsecured pension fund lump sum death benefit.

(4)The permitted maximum is the aggregate of—

(a)the amount of the sums, and

(b)the market value of the assets,

representing the member’s or dependant’s unsecured pension fund in respect of the arrangement immediately before the payment is made.

Charity lump sum death benefit

18(1)A lump sum death benefit is a charity lump sum death benefit if—

(a)the member had reached the age of 75 at the date of the member’s death,

(b)there are no dependants of the member,

(c)it is paid in respect of income withdrawal to which the member was entitled in respect of an arrangement at the date of the member’s death, and

(d)it is paid to a charity nominated by the member.

(2)A lump sum death benefit is also a charity lump sum death benefit if—

(a)it is paid on the death of a dependant of the member,

(b)the dependant had reached the age of 75 at the date of the dependant’s death,

(c)there are no other dependants of the member,

(d)it is paid in respect of dependants' income withdrawal to which the dependant was entitled at the date of the dependant’s death in respect of an arrangement relating to the member, and

(e)it is paid to a charity nominated by the member (or, if the member made no nomination, by the dependant).

(3)But if the amount of a lump sum falling within sub-paragraph (1) or (2) exceeds the permitted maximum, the amount of the excess is not a charity lump sum death benefit.

(4)The permitted maximum is the aggregate of—

(a)the amount of the sums, and

(b)the market value of the assets,

representing the member’s or dependant’s alternatively secured pension fund in respect of the arrangement immediately before the payment is made.

Transfer lump sum death benefit

19(1)For the purposes of this Part a lump sum death benefit is a transfer lump sum death benefit if—

(a)the member had reached the age of 75 at the date of the member’s death,

(b)there are no dependants of the member,

(c)it is paid in respect of income withdrawal to which the member was entitled in respect of an arrangement at the date of the member’s death, and

(d)it is paid so as to become held for the purposes of, or to represent accrued rights under, arrangements under the pension scheme relating to one or more members of the pension scheme nominated by the deceased member (or if the member made no nomination, selected by the scheme administrator).

(2)A lump sum death benefit is also a transfer lump sum death benefit if—

(a)it is paid on the death of a dependant of the member,

(b)the dependant had reached the age of 75 at the date of the dependant’s death,

(c)there are no other dependants of the member,

(d)it is paid in respect of dependants' income withdrawal to which at the date of the dependant’s death the dependant was entitled in respect of an arrangement relating to the member under the pension scheme, and

(e)it is paid so as to become held for the purposes of, or to represent accrued rights under, arrangements under the pension scheme relating to one or more members of the pension scheme nominated by the relevant person (or if the relevant person made no nomination, selected by the scheme administrator).

(3)The relevant person is the member or, if no nomination is made by the member, the dependant.

(4)But if the amount of a lump sum falling within sub-paragraph (1) or (2) exceeds the permitted maximum, the amount of the excess is not a transfer lump sum death benefit.

(5)The permitted maximum is the aggregate of—

(a)the amount of the sums, and

(b)the market value of the assets,

representing the member’s or dependant’s alternatively secured pension fund in respect of the arrangement immediately before the payment is made.

Defined benefits and money purchase arrangements

Trivial commutation lump sum death benefit

20(1)A lump sum death benefit is a trivial commutation lump sum death benefit if—

(a)the member had not reached the age of 75 at the date of the member’s death,

(b)it is paid to a dependant entitled under the pension scheme to pension death benefit in respect of the member,

(c)it is paid before the day on which the member would have reached the age of 75, and

(d)it extinguishes the dependant’s entitlement under the pension scheme to pension death benefit and lump sum death benefit in respect of the member.

(2)But if the amount of a lump sum falling within sub-paragraph (1) exceeds 1% of the standard lifetime allowance on the date the lump sum is paid, the excess is not a trivial commutation lump sum death benefit.

Winding-up lump sum death benefit

21(1)For the purposes of this Part a lump sum death benefit is a winding-up lump sum death benefit if—

(a)the pension scheme is being wound-up,

(b)it is paid to a dependant entitled under the pension scheme to pension death benefit in respect of the member, and

(c)it extinguishes the dependant’s entitlement under the pension scheme to pension death benefit and lump sum death benefit in respect of the member.

(2)But if the amount of a lump sum falling within sub-paragraph (1) exceeds 1% of the standard lifetime allowance on the date the lump sum is paid, the excess is not a winding-up lump sum death benefit.

Interpretation

Interpretation of Part 2

22(1)Expressions used in this Part of this Schedule and in Schedule 28 have the same meaning in this Part of this Schedule as in Schedule 28.

(2)Where by virtue of paragraph 14(2), 20(2) or 21(2) an excess is not an authorised lump sum death benefit of one description, that does not prevent the excess being an authorised lump sum death benefit of another description.

(3)“Authorised lump sum death benefit” means a lump sum death benefit authorised to be paid by the lump sum death benefit rule.