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Adviser  >  Technical Central  >  Information & guidance  >  Death benefits  >  Death benefits

Death benefits

Death benefit provision within pension schemes can be complex. This analysis focuses on death benefits both before and after retirement and the range of options available under each situation.

What options are actually available will of course depend on the rules of the relevant pension scheme.

Key points

There are a number of factors which affect death benefit provision on the member's death. These include

  • Whether or not the member was in receipt of their benefits when they died
  • The type of pension the member was in receipt of (if applicable)
  • The age of the member at date of death.

HMRC have a definition of the word 'dependant' and an individual must meet this in order to be paid a dependants pension.

If the member dies after taking their benefits or after the age of 75, there will be a tax charge of 55% on any lump sum death benefits paid.

Inheritance tax is not usually payable on lump sum death benefits but, where the scheme administrator has no discretion over the payment, there would be a liability.

Options... at a glance

Generally speaking, there are two options available to beneficiaries on the member's death.

Click on a heading below to learn more:

1. Lump sum

2. Dependants pensions

Different options for different scenarios...

Although the options available to the beneficiaries generally fall into one of the above categories, the actual options depend on the member's circumstances at the time they die.

The following four scenarios show the options available to the beneficiaries, depending on the age of the member when they die and whether or not they have taken their retirement benefits.

Click on a scenario to see the options available to the beneficiaries, and click on an option for further details.

Member dies before taking their benefits and under the age of 75

The options available to the beneficiaries are shown below. Click on a heading to learn more.

Lump sum

Dependant's secured pension

Dependant's capped drawdown pension

Member dies before taking their benefits and over the age of 75

The options available to the beneficiaries are shown below. Click on a heading to learn more.

Lump sum

Dependant's secured pension

Dependant's capped drawdown pension

Member dies after taking their benefits and under the age of 75

The death benefit situation after benefits have been crystallised depends on the way in which benefits were taken. Click on a heading to learn more.

Death whilst in receipt of a secured pension

Death whilst in receipt of a capped drawdown pension

Member dies after taking their benefits and over the age of 75

The death benefit situation after benefits have been crystallised depends on the way in which benefits were taken. Click on a heading to learn more.

Death whilst in receipt of a secured pension

Death whilst in receipt of a capped drawdown pension

A couple of points worth bearing in mind...

If there are no dependants it may be possible to pay a charity lump sum death benefit, though certain conditions apply.

Dependants pensions do not have a tax-free cash option.

Remember once a decision to take benefits has been made it is irreversible and a member cannot change their mind later on.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

In addition, the information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.

Published 7 October 2004

Updated 6 April 2014

For professional advisers only