Dependants' scheme pensions
Published 9 December 2015
© Crown copyright 2015
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This publication is available at https://www.gov.uk/government/publications/dependants-scheme-pensions/dependants-scheme-pensions
Who is likely to be affected
Individuals who receive a dependants’ scheme pension following the death of a member of a registered pension scheme aged 75 or over.
Scheme administrators of registered pension schemes.
General description of the measure
This measure will remove the need for calculations to be carried out each year comparing the value of the dependants’ scheme pension to the scheme pension of the member in certain circumstances.
Policy objective
The measure supports the government’s objective of reducing administrative burdens making the tax system simpler to operate.
Background to the measure
The measure was announced at Autumn Statement 2015.
Detailed proposal
Operative date
This measure will have effect for dependants’ scheme pensions that are paid on or after 6 April 2016.
Current law
An anti-avoidance measure was introduced with effect from 6 April 2006 to limit the amount set aside to pay dependants’ scheme pensions from a registered pension scheme. This is so that it cannot be excessive in comparison with the amount used to provide the member’s scheme pension (paragraphs 16B and 16C of Schedule 28), in that way avoiding the lifetime allowance charge.
This anti-avoidance measure applies to members who die on or after 6 April 2006, have reached age 75 before their death and are actually or prospectively entitled to receive a scheme pension at their death (paragraph 16A of Schedule 28).
In those cases a test must be carried out during the first year that any dependant is entitled to receive a scheme pension (paragraph 16B of Schedule 28) and every following year (paragraph 16C of Schedule 28).
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to reduce significantly the number of calculations that need to take place to determine whether a dependants’ scheme pension exceeds the authorised limit.
If the total value under a pension scheme is not more than 25% of the standard lifetime allowance at the earlier of member’s death (if the member did not have an actual right to a scheme pension at death) or the date the member became entitled to the pension (rounded up to the nearest £100), then the scheme administrator is authorised to pay the dependants’ scheme pensions without the test in paragraph 16B being carried out.
If the total value exceeds the threshold then the calculations in paragraph 16B will need to be carried out to determine how much of the payment to the dependant is an authorised payment. The calculation in paragraph 16C will need to be carried out every year.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|---|
| - | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
The removal of certain dependants’ scheme pensions from the existing test could potentially affect individuals. The amount to be tested against the threshold is, under a defined benefits arrangement, the value of the member’s and dependants’ scheme pensions and any lump sum death benefits and under a money purchase arrangement is the value of the funds or the promised amount.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure will affect dependants who receive a scheme pension where the member dies having reached age 75. The dependants could belong to any age group. The government expects these measures to affect proportionately more women than men, as men are more likely to have pension savings and to die first. The change is more likely to have an effect on those later in life. No other impacts are anticipated in respect of groups sharing other protected characteristics.
Impact on business including civil society organisations
This measure is expected to reduce the administrative burden on scheme administrators through removing a significant number of dependants’ scheme pensions from the tests which need to be carried out when a dependants’ scheme pension is payable.
The implementation costs are expected to be negligible because the new tests use information already available to the scheme administrator.
Overall this measure is expected to have a negligible impact on businesses and civil society organisations. Small and micro business assessment: this measure is expected to have a negligible impact on small and micro businesses.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
It is not anticipated that implementing this change will incur any additional costs or savings for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
These measures will be kept under review through the monitoring of information collected on tax returns and tax records.
Further advice
If you have any questions about this change, please contact Beverley Davies on Telephone: 03000 585266 or email: pensions.policy@hmrc.gsi.gov.uk.