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HMRC internal manual

Pensions Tax Manual

Death benefits: types of pension: dependants' drawdown pension: dependants’ short-term annuities (up to 5 April 2015)

Glossary PTM000001
   

 

Paying a dependants’ short-term annuity
Taking a dependants’ short-term annuity and income withdrawal from the same pension scheme/arrangement at the same time
The maximum dependants’ short-term annuity payable
Reviewing a dependants’ short-term annuity
What happens at age 75?

Note: The guidance on this page relates to short-term annuities taken out before 6 April 2015. See page PTM072420 for guidance on short-term annuities taken out on or after 6 April 2015 and for taxation details.

Paying a dependants’ short-term annuity

Paragraph 20 Schedule 28 Finance Act 2004

The Registered Pension Schemes (Transfers of Sums and Assets) Regulations 2006 - SI 2006/499

Part of a dependants’ drawdown pension fund can be used to buy a dependants’ short-term annuity contract from an insurance company of the dependant’s choice. A dependants’ short-term annuity contract will pay a fixed amount each year. The contract can last for up to five years and does not have to come to an end when the dependant reaches age 75.

Taking a dependants’ short-term annuity and income withdrawal from the same pension scheme/arrangement at the same time

A dependants’ short term annuity and income withdrawal can be taken from the same scheme/arrangement as long as the scheme rules allow it.

The maximum dependants’ short-term annuity payable

There is no minimum amount. If a dependants’ short-term annuity is purchased from a dependants’ drawdown pension fund to which flexible drawdown applies, there is no upper limit on the amount the dependants’ short-term annuity can pay.

Where a dependants’ short term annuity is bought using funds from a dependants’ capped drawdown pension fund there is an upper limit on the amount the short-term annuity can pay. The amount payable from a dependants’ short-term annuity contract plus the amount of any income withdrawal from the dependants’ capped drawdown pension fund in a pension year cannot be more than the maximum dependants’ drawdown pension.

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Reviewing a dependants’ short-term annuity

A dependants’ short-term annuity can be for a period of up to five years. However if the dependant is using dependants’ capped drawdown, the maximum drawdown pension will be reviewed:

  • at least every three years if they are under 75, and
  • every year when they are 75 or older.

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What happens at age 75?

The dependants’ short-term annuity can continue past the 75th birthday. The dependant can also buy a dependants’ short-term annuity when they are 75 or older.