Finance Act 2004

Part 2U.K.Lump sum death benefit rule

Defined benefits arrangementsU.K.

Defined benefits lump sum death benefitU.K.

13[F1(1)]For the purposes of this Part a lump sum death benefit is a defined benefits lump sum death benefit if—U.K.

F2(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F3(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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.

F4...

F5(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pension protection lump sum death benefitU.K.

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

F6(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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 arrangementsU.K.

Uncrystallised funds lump sum death benefitU.K.

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

F8(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F9(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d)it is paid in respect of relevant uncrystallised funds[F10, and

(e)it is not a charity lump sum death benefit.]

F11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F12(1A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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, [F13a nominees' annuity,] a dependants' scheme pension or a dependants' annuity, and

(b)had not been designated under the arrangement as available for the payment of [F14drawdown pension].

[F15(2A)Where—

(a)the arrangement is a cash balance arrangement,

(b)under the arrangement, a dependant of the member is entitled to be paid after the member's death an amount by way of a lump sum,

(c)the dependant's entitlement to a lump sum of that amount under the arrangement comes into being at a time no later than the member's death,

(d)such of the sums and assets held for the purposes of the arrangement immediately after the member's death as are held for the purpose of meeting the liability to pay the lump sum are insufficient for that purpose (including where that is because none are held for that purpose), and

(e)a person who was an employer in relation to the member pays a contribution to the scheme—

(i)for or towards making good that insufficiency, and

(ii)of no more than is needed for making good the insufficiency,

the sums and assets held for the purposes of the arrangement that represent the contribution are to be treated as “relevant uncrystallised funds” for the purposes of this paragraph.]

(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 benefitU.K.

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

F16(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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—

[F18Drawdown pension fund lump sum death benefit]U.K.

17[F19(1)For the purposes of this Part a lump sum death benefit is a drawdown pension fund lump sum death benefit if—U.K.

(a)it is paid in respect of income withdrawal to which the member was entitled [F20to be paid from the member's drawdown pension fund in respect of] an arrangement at the date of the member's death, and

(b)it is not a charity lump sum death benefit.]

(2)A lump sum death benefit is also [F21a drawdown pension fund lump sum death benefit] if—

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

F22(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)it is paid in respect of dependants' income withdrawal to which the dependant was entitled at the date of the dependant’s death [F23to be paid from the dependant's drawdown pension fund] in respect of an arrangement relating to the member[F24, and

(d)it is not a charity lump sum death benefit.]

(3)But if the amount of a lump sum falling within sub-paragraph (1) or (2) exceeds the permitted maximum, the excess is not [F25a drawdown 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 [F26drawdown pension fund] in respect of the arrangement immediately before the payment is made.

[F27Flexi-access drawdown fund lump sum death benefitU.K.

17A(1)For the purposes of this Part a lump sum death benefit is a flexi-access drawdown fund lump sum death benefit if—U.K.

(a)it is paid in respect of income withdrawal to which the member was entitled to be paid from the member's flexi-access drawdown fund in respect of an arrangement at the date of the member's death, and

(b)it is not a charity lump sum death benefit.

(2)A lump sum death benefit is also a flexi-access drawdown fund lump sum death benefit if—

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

(b)it is paid in respect of dependants' income withdrawal to which the dependant was at the date of the dependant's death entitled to be paid from the dependant's flexi-access drawdown fund in respect of an arrangement relating to the member, and

(c)it is not a charity lump sum death benefit.

(3)A lump sum death benefit is also a flexi-access drawdown fund lump sum death benefit if—

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

(b)it is paid in respect of nominees' income withdrawal to which the nominee was at the date of the nominee's death entitled to be paid from the nominee's flexi-access drawdown fund in respect of an arrangement relating to the member, and

(c)it is not a charity lump sum death benefit.

(4)A lump sum death benefit is also a flexi-access drawdown fund lump sum death benefit if—

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

(b)it is paid in respect of successors' income withdrawal to which the successor was at the date of the successor's death entitled to be paid from the successor's flexi-access drawdown fund in respect of an arrangement relating to the member, and

(c)it is not a charity lump sum death benefit.

(5)But if the amount of a lump sum falling within sub-paragraph (1), (2), (3) or (4) exceeds the permitted maximum, the excess is not a flexi-access drawdown fund lump sum death benefit.

(6)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, dependant's, nominee's or successor's flexi-access drawdown fund in respect of the arrangement immediately before the payment is made.]

Charity lump sum death benefitU.K.

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

F28(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)there are no dependants of the member,

(c)it is paid [F29in respect of the member's drawdown pension fund] in respect of an arrangement[F30, or in respect of the member's flexi-access drawdown fund 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 F31...

[F32(1A)A lump sum death benefit is also 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 relevant uncrystallised funds in respect of a money purchase arrangement at the date of the member's death, and

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

(1B)“Relevant uncrystallised funds” has the meaning given by paragraph 15(2).]

(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,

F33(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(d)it is paid in respect of [F34the dependant's drawdown pension fund][F35, or the dependant's flexi-access drawdown fund,] 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 [F36or, if the member made no nomination, by the dependant F37... .]

[F38(2A)A lump sum death benefit is also a charity lump sum death benefit if—

(a)it is paid on the death of an individual who is—

(i)a nominee of the member, or

(ii)a successor of the member,

(b)there are no dependants of the member,

(c)it is paid in respect of the individual's nominee's flexi-access drawdown fund or successor's flexi-access drawdown fund at the date of the individual's death in respect of an arrangement relating to the individual in the capacity of a nominee or successor of the member, and

(d)it is paid to a charity nominated by the member or, if the member made no nomination, by the individual.]

(3)But if the amount of a lump sum falling within sub-paragraph (1)[F39, (2) or (2A)] 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,

[F40representing what is the member's or dependant's drawdown pension fund][F41, or flexi-access drawdown fund,] in respect of the arrangement[F42, or the nominee's or successor's flexi-access drawdown fund in respect of the arrangement,] immediately before the payment is made.

Transfer lump sum death benefitU.K.

F4319U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Defined benefits and money purchase arrangementsU.K.

Trivial commutation lump sum death benefitU.K.

20(1)A lump sum death benefit is a trivial commutation lump sum death benefit [F44if condition A or B is met.] U.K.

[F45(1A)Condition A is that the lump sum—

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

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

(1B)Condition B is that—

(a)the lump sum is paid after the member's death to an individual entitled to be paid a pension under the scheme—

(i)which the member was entitled to be paid immediately before the member's death, and

(ii)which is payable to the individual under pension rule 2 (see section 165),

(b)if the pension is an annuity or scheme pension payable by an insurance company, the lump sum extinguishes all entitlements in respect of the member under the contract concerned, and

(c)if the pension is a scheme pension payable by the scheme administrator, the lump sum extinguishes all entitlements to receive a scheme pension in respect of the member from the scheme administrator under pension rule 2.]

(2)But if the amount of a lump sum falling within sub-paragraph (1) exceeds [F46£30,000], the excess is not a trivial commutation lump sum death benefit.

[F47(3)The Treasury may by order substitute for the amount for the time being specified in sub-paragraph (2) such larger amount as is specified in the order.]

U.K.

F4821U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

InterpretationU.K.

Interpretation of Part 2U.K.

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.U.K.

(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.