The Synaptic Guide to SIPPs

Pension technical update – the extended definition of a dependant

Under existing legislation, a person must meet one of the following definitions in order to be classed as a dependant:

  • A spouse or civil partner of the member (either at the member’s death or, if the scheme rules allow, when the member became entitled to a pension under the scheme)
  • A child of the member under age 23
  • A child age 23 or over, who was dependent on the member at the time of the member’s death due to physical or mental impairment
  • A person who was not a spouse, civil partner or child of the member who, at the member’s death, was:
    • Financially dependent on the member
    • In a mutually dependent financial relationship with the member
    • Dependent on the member due to physical or mental impairment.

All except one of the definitions depends on a person’s status at a fixed point in time. A person who meets one of those definitions cannot ‘lose’ their classification as a dependant. However, as the second definition is based solely on age, a child would no longer be a dependant upon reaching age 23.

This causes problems when death benefits are paid in a form which involves ongoing income, such as dependants’ drawdown. Income from a dependant’s drawdown account can only be paid to a dependant; otherwise it is an unauthorised payment. Therefore children must usually stop taking income before their 23rd birthdays.

Draft legislation is now in place to resolve this problem going forward. It will work by adding a new definition of a dependant as follows:

  • A child of the member who:
    • Has reached age 23
    • Was not dependent on the member due to physical or mental impairment at the time of the member’s death.

This additional definition will only apply if a child has established a dependant’s drawdown account before age 23, allowing them to continue taking income as a dependant after reaching this age. It does not extend to other areas of the legislation. Therefore, other than where a child was dependent due to physical or mental impairment:

  • Children who are already 23 or over when inheriting benefits will still be classed as nominees, rather than dependants
  • Dependant’ annuities and dependants’ scheme pensions for children must still end at age 23
  • The existence of a child age 23 or over would not prevent the payment of a charity lump sum death benefit.