Death benefits—final salary schemes
Produced in partnership with Mark Smith of Taylor Wessing
Death benefits—final salary schemes

The following Pensions guidance note Produced in partnership with Mark Smith of Taylor Wessing provides comprehensive and up to date legal information covering:

  • Death benefits—final salary schemes
  • Death as an active member
  • Death as a deferred member
  • Death as a pensioner

THIS PRACTICE NOTE APPLIES ONLY TO REGISTERED FINAL SALARY OCCUPATIONAL PENSION SCHEMES

Most pension schemes provide for benefits upon the death of the members. What those benefits will be depends on:

  1. the type and terms of the scheme

  2. the member’s status at death (ie active, deferred, pensioner), and

  3. what death benefits HMRC permits as an authorised payment

The scheme rules need to be checked carefully as flexible retirement (which allows members to receive benefits while remaining in active service) has introduced a myriad of benefit provisions into some schemes, with boundaries becoming blurred between the different types of member. For further information, see Practice Note: Flexible retirement.

HMRC’s Pensions Tax Manual provides further guidance on the types of death benefit that may be paid from final salary schemes as an authorised payment. Unauthorised payments are subject to a punitive tax charge. For further information, see Practice Note: Authorised and unauthorised payments.

Death as an active member

Pension

It is common for the rules of a final salary scheme to provide for a pension to be payable in the event of a member’s death in service to their spouse and/or dependant. This would often be expressed under the rules as a percentage of the pension that would have been payable to the member (if they had retired at date of death) and can