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 February 2025.
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 of 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).
The maximum that can be paid as a charity lump sum death benefit from unused drawdown funds is called the ‘permitted maximum’. The permitted maximum is the total of the sums and market value of the assets held under the drawdown pension fund or flexi-access drawdown fund from which the lump sum is paid. The valuation is made at the point of the lump sum payment. So, any growth of those drawdown/flexi-access funds between the date of the member’s or beneficiary’s death and the date the lump sum is paid may be included in the payment. The payment will be made tax-free as long as it doesn't exceed the permitted maximum and it is used for charitable purposes. If it isn't used for charitable purposes, it will be treated as an unauthorised member payment and taxed accordingly.
If the amount of the lump sum is more than the 'permitted maximum' the excess amount is not a charity lump sum death benefit. If the excess cannot be paid as some other type of authorised lump sum death benefit it will be an unauthorised member payment and taxed accordingly.
Where a charity lump sum death benefit is to be paid from uncrystallised funds, the maximum that can be paid must represent, at most, the member's relevant uncrystallised funds. This is the value of the sums and assets that are held under the arrangement in respect of the member that have not been used to provide a pension, annuity or designated for drawdown and can include any investment growth on those funds after the date of death. Charity lump sum death benefits paid from uncrystallised rights are not tested against the permitted maximum.
A charity lump sum death benefit payment is not a relevant BCE and won't impact an individual's Lump Sum and Death Benefit Allowance.