This guide is for financial advisers only. It mustn’t be distributed to, or relied on by, customers. It is based on our understanding of legislation as at May 2023.
Where a member has no dependants, a charity lump sum death benefit may be payable if the scheme rules allow.
Generally, a charity lump sum death benefit can be paid:
- From the member’s remaining drawdown or flexi-access drawdown pension funds
- From the member’s remaining uncrystallised fund under a money purchase arrangement
- From a dependant’s drawdown or dependant’s flexi-access drawdown pension fund where the dependant dies and there are no other dependants of the member
- From a nominee’s or successor’s flexi-access drawdown pension fund where the nominee/successor dies and there are no other dependants on the member
The member, dependant, nominee or successor must nominate the charity – the scheme administrator can’t select the charity if no nomination is made before the member, or beneficiary, dies.
A charity lump sum death benefit can only be paid where there are no dependants of the member. For this purpose, a child dependant is:
- Children under the age of 23, or
- Children who are dependants because of physical or mental impairment (the age 23 limit does not apply here).
The extended meaning of child dependant introduced on 16 September 2016 for continuing dependant’s drawdown for children who are dependant and reach age 23 does not apply here (See ‘Dependants, nominees and successors’ for more information on this).
Payment of a charity lump sum death benefit is tax free so long as it’s used for charitable purposes. If it’s not used for charitable purposes it will be treated as an unauthorised member payment and taxed accordingly.
A charity lump sum death benefit is not a BCE and doesn’t trigger a lifetime allowance test.