Death Benefits
Revenue Pensions Manual
1 Lump sum benefits
Where an employee dies in service before normal retirement age (NRA) a lump sum not exceeding the greater of €6,350 or four times the deceased employee’s final remuneration may be provided. The definition of final remuneration for this purpose need not be the same as for the calculation of other benefits and may in this case be the rate payable at the date of death.
The lump sum may be paid to the employee’s legal personal representatives or a nominated beneficiary, or distributed at the discretion of the employer, trustee or administrator. It is not necessary to limit distribution to dependants. The money may continue to be held under the rules of the pension scheme for a period not exceeding two years, if this is necessary for the administrator to determine who is to benefit. Once the recipients have been selected, the money should be paid over to them promptly or transferred to a separate account outside the scheme. A refund of the employee’s own contributions (with or without interest) may be paid in addition to any other lump sum.
2 Pensions or benefits for spouses, civil partners and dependants
In addition to the lump sum, an approved scheme may provide a pension or transfer of benefits into an Approved Retirement Fund (ARF) for a spouse, or civil partner, or where the employee does not have a spouse or civil partner, for a dependant, of an amount not exceeding the maximum aggregate pension that could have been approved for the employee if s/he had retired on ill-health grounds on the date of her/his death (see Chapter
9.2 – such a pension, or benefits transferred to an ARF, can take account of the whole potential service up to NRA).
Section 772(3)(b) Taxes Consolidation Act 1997 (TCA), as amended by section 12 Finance Act 2021, states that occupational pension scheme rules can provide that the aggregate pension that can be provided for a spouse or civil partner, or where there is no spouse or civil partner, for dependants of a deceased member of a scheme who dies in service, can be taken as either a pension or a sum of equivalent pension value transferred to an ARF. This option has effect from 21 December 2021, the date of the passing of Finance Act 2021.
Where benefits are transferred to an ARF, the rules relating to ARFs shall apply (see Chapter 23 – ARFs for details).
Where an employee has died in service before 21 December 2021, and a pension for a spouse, or civil partner, or where there is no spouse or civil partner, for a dependant, has not yet been paid, Revenue discretion will be exercised in such cases to allow the benefits transfer to an ARF after 21 December 2021.
Where benefits for the employees themselves take the form of a pension, or benefits transferred to an ARF, plus a separate lump sum, rather than a partly commutable pension, the maximum pension or benefits, includes the pension equivalent of the lump sum. A spouse’s or civil partner’s (but not a dependant’s) pension may be deferred instead of being taken immediately. In cases of benefits transferable to an ARF, this cannot be deferred.
Where there are both a spouse or civil partner and dependants, or no spouse or civil partner but more than one dependant, separate pensions or pension equivalent of the benefits transferred to an ARF, may be provided for each individual. However, no single pension, or pension equivalent of the benefits transferred to an ARF, nor the aggregate of all pensions payable under this paragraph may exceed the amount specified in the preceding paragraph. Subject to these limits, the benefits may be shared in any manner desired.
Where an individual dies in service and the equivalent pension value is transferred to an ARF for the individual’s spouse, civil partner or dependant(s), the person(s) taking the benefits in the form of an ARF are deemed to take an inheritance for CAT purposes. The usual CAT rules will apply in determining whether any CAT liability arises on the individual(s) deemed to take the inheritance. No CAT arises on gifts or inheritances between spouses or civil partners. For persons other than a spouse or civil partner, there may be a CAT liability.
Payment of death-in service-benefits, including benefits transferred to an ARF under s772(3)(b)(ii), or a dependant’s pension is not a benefit crystallisation event (BCE) (see Chapter 25.4).
An approved scheme may permit full commutation of a pension if the aggregate benefits payable to a spouse, or civil partner, or where there is no spouse or civil partner, for a dependant under that scheme and any other scheme relating to the same employment, do not exceed the value of a pension of €330 per annum (see Chapter 7.4 for details of trivial pensions).
3 Benefits from earlier employment
For the purpose of the limits set out in the preceding paragraphs, preserved death benefits derived from earlier employments must be taken into account and benefits of the same type from the current employment correspondingly restricted, but the following may be ignored:
(a) refunds of contributions to the employee by a scheme of an earlier employer;
(b) small preserved benefits, that is, lump sums not exceeding €1,270 in aggregate or spouse’s or dependants’ pensions not exceeding €330 per annum in aggregate;
(c) preserved lump sums from earlier employments, so long as the lump sum from the current employment does not exceed twice final remuneration (excluding any refund of the employee’s contributions); and
(d) preserved lump sum death benefits arising from retirement annuity contracts.
Revenue will exercise discretion flexibly on the provision of pension benefits on death-in- service, especially for lower-paid employees.
Where it is proposed to provide spouse’s or civil partner’s and dependants’ pensions, or pension equivalent of the benefits transferred to an ARF, on a scale based on the employee’s pre-death salaries rather than as a proportion of the pensions which s/he might
have received, the scheme will probably be approved in that form if the spouse’s or civil partner’s and dependants’ pensions, or pension equivalent of the benefits transferred to an ARF, are unlikely, by and large, to exceed the limit set out in paragraph 2 above or to be large in monetary terms.
4. Death-in-service after normal retirement age
Where an employee dies in service after her/his NRA, benefits may be given either on the basis appropriate to death-in-service generally, or on the basis that would have applied if s/he had in fact retired on the day before his/her death. If, however, the employee took her/his pension and/or lump sum at NRA, the only lump sum death-in-service benefit which may be provided is any payment due under a guarantee attaching to this pension (see Chapter 11.9 and 11.10).
Benefits on Death After Retirement
Chapter 11
This chapter should be read in conjunction with section 772 Taxes Consolidation Act 1997.
This document was last updated July 2021
1 Lump sum benefits
No lump sum benefits may be paid if death occurs after retirement except:
(a) any payment due under a guarantee attaching to the pension (paragraphs 4 to 4.4), or
(b) any sum falling due under a life policy or scheme rule that gave continued cover on death after retirement (see Chapter 6.9).
2 Pensions paid to surviving spouses, civil partners and dependants in their own right
A spouse’s or civil partner’s pension may be provided up to a limit which is equal to the maximum aggregate pension that could be approved for the employee, whether or not the employee was given that maximum. Alternatively, a similar pension may be provided for a dependant.
If the employee leaves both a spouse or civil partner and a dependant, or if there is no spouse or civil partner but more than one dependant, no single pension nor the aggregate of all pensions payable under this paragraph may exceed the above limit.
In this paragraph, “maximum aggregate pension” means the maximum in the particular circumstances in which the employee himself or herself retired, that is, at normal retirement age (NRA) or earlier or later than NRA, increased proportionately to any rise in the Consumer Price Index (CPI) from the date from which the employee’s own pension became payable.
2.1 Commencement of benefits to surviving spouse/civil partner or dependant
Pensions for surviving spouses, civil partners and dependants may commence on the employee’s death except where the member’s pension is guaranteed for more than five years, in which case the spouse’s or civil partner’s pension must not commence until the end of the guaranteed period.
2.2 Cessation
A spouse’s or civil partner’s pension may continue for life, or it may cease on re-marriage or on entry into a new civil partnership (N.B. – no new civil partnerships may be entered into since the enactment of the Marriage Act 2015). A pension for a child must cease when the child ceases to be a dependant. Pensions payable to other dependants may continue for life irrespective of any later change in the dependant’s circumstances.
3 Employee pensions part-allocated or surrendered to spouses or civil partners
Part of an employee’s pension may be allocated or surrendered to provide a spouse’s or civil partner’s pension. The spouse’s or civil partner’s pension may not exceed the amount retained by the employee. This option is also available where a spouse or civil partner has an entitlement to a separate pension under another scheme or under another rule of the same scheme. For the purposes of calculation, the reduced pension retained can include any part of the employee’s pension that has been commuted and the pension equivalent of any separate lump sum benefit.
3.1 Employee pension part-surrendered for dependant pension payable on death of employee
Alternatively, a pension for a dependant coming into payment on the employee’s death after retirement may also be provided by means of the surrender of part of the employee’s pension, subject to the same conditions as for a spouse or civil partner. A retiring employee who is likely to be survived by a spouse or civil partner and by one or more dependants may similarly provide reversionary pensions for them, provided that those pensions do not exceed in aggregate what is left for himself or herself.
3.2 Payment of an allocated or surrendered pension
Unlike an own-right pension (see paragraph 2.1), payment of an allocated or surrendered pension may commence on the member’s death even if payment of her or his pension continues under a guarantee for more than five years.
4 Guaranteed minimum benefits
If benefits paid under an approved scheme are less than the member’s own contributions plus reasonable interest, the rules may provide for payment of a lump sum equal to the difference.
4.1 Identifiable contributions towards a pension for spouses, civil partners or dependants
If the employee made separately identifiable contributions to provide an independent spouse’s or civil partner’s pension or a pension for dependants, provision may similarly be made for payment of a lump sum equal to the excess of those contributions plus interest over the amount actually received by the beneficiaries.
4.2 No guaranteed minimum period except for allocated or surrendered pensions
Pensions for surviving spouses, civil partners and dependants may not be guaranteed for a minimum number of years except that, where an allocated pension for a spouse, civil partner or dependant has been provided by allocation or surrender of part of the member’s pension, the allocated pension may be guaranteed for a period not exceeding five years after the commencement of the member’s pension.
4.3 Alternative guarantees
As an alternative to the guarantees in this paragraph, an approved scheme may provide that a pension payable to a retired employee may continue for a period of up to ten years even if the pensioner dies within that period. If the guarantee period does not exceed five years and the normal retirement age for the scheme is not more than 70, an immediate lump sum may be paid equal to the instalments falling due after the pensioner’s death. This may reflect quantified cost of living increases that would have been paid if the pension had continued.
4.4 Who may receive the pension?
Payments discussed in this paragraph may be made to a member’s spouse, civil partner or dependant, or to the legal personal representatives, or to a nominated beneficiary, at the discretion of the employer, trustee or administrator.
Statutes S. 785 TCA
785. Approval of contracts for dependants or for life assurance.
(1) The Revenue Commissioners may approve for the purposes of this Chapter a contract made by an individual with a person (in subsection (2) referred to as “the insurer”) lawfully carrying on in the State the business of granting annuities on human life if –
(a) the main benefit secured by the contract is the provision of an annuity for the wife, husband or civil partner of the individual or for any one or more dependants of the individual, or
(b) the sole benefit secured by the contract is the provision of a lump sum on the death of the individual before he or she attains the age of 75 years, being a lump sum payable to the individual’s personal representatives.
(1A) For the purposes of subsection (1), the reference in subsection (1) to a person lawfully carrying on in the State the business of granting annuities on human life shall include a reference to an insurance undertaking, authorised to transact insurance business in the State under Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 , that –
(a) is not resident in the State, or
(b) is not trading in the State through a fixed place of business.
(2) The Revenue Commissioners shall not approve a contract made by an individual with the insurer under subsection (1)(a) unless it appears to them to satisfy the following conditions –
(a) that any annuity payable to the wife, husband, civil partner or dependant of the individual commences on the death of the individual;
(b) that any annuity payable under the contract to the individual commences at a time after the individual attains the age of 60 years and, unless the individual’s annuity is one to commence on the death of a person to whom an annuity would be payable under the contract if that person survived the individual, cannot commence after the time when the individual attains the age of 75 years;
(c) that the contract does not provide for the payment by the insurer of any sum, other than any annuity payable to the individual’s wife, husband, civil partner or dependant or to the individual except, in the event of no annuity becoming payable under the contract, any sums payable to the individual’s personal representatives by means of return of premiums, reasonable interest on premiums or bonuses out of profits;
(d) that the contract does not provide for the payment of any annuity otherwise than for the life of the annuitant;
(e) that the contract provides that no annuity payable under it shall be capable in whole or in part of surrender, commutation or assignment.
(3) The Revenue Commissioners may, if they think fit and subject to any conditions they think proper to impose, approve a contract under subsection (1)(a), notwithstanding that in one or more respects it does not appear to them to satisfy the conditions specified in subsection (2).
(4)Subsections (2) and (3) of section 784 shall not apply to the approval of a contract under this section.
(5) The Revenue Commissioners may approve a trust scheme or part of a trust scheme otherwise satisfying the conditions specified in paragraphs (a) to (c) of section 784(4), notwithstanding that its main purpose is to provide annuities for the wives, husbands, civil partners and dependants of the individuals, or lump sums payable to the individuals’ personal representatives on death, and –
(a) subsections (1) to (4) shall apply with any necessary modifications in relation to such approval,
(b) this Chapter shall apply to the scheme or part of the scheme when so approved as it applies to a contract approved under this section, and
(c) the exemption from income tax provided in section 784(4) shall apply to the scheme or part of the scheme when so approved.
(6) Except where otherwise provided in this Chapter, any reference in the Income Tax Acts to a contract, scheme or part of a scheme approved under section 784 shall include a reference to a contract, scheme or part of a scheme approved under this section.