4.7.3 Lump Sum Death Benefit
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A personal pension policy may provide a lump sum payment on the
death of the policyholder before the age of 75.
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Pension policies providing a death benefit usually do so through
a separate term assurance policy and PPPs, providing life cover
only were available until 6th April 2001. For policies taken out
before 6th April 2001, the life assurance premium is limited to
5% of NRE. For contracts made on or after 6th April 2001 up to 10%
of the contribution being paid can be used to provide life cover.
The premium paid in respect of life assurance reduces the amount
which can then be paid to pension on a £ for £ basis.
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The death benefit under a pension policy, when issued separately,
may be written under trust to reach dependants free of inheritance
tax.
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Additionally, pension policies may be written so that, in the event
of death before retirement, contributions are returned. Generally
one of the following bases is used:
- Return of premiums without interest.
- Return of premiums with interest.
- Return of the accumulated value of the pension fund at the date
of death.
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Such an option may be used where a pension is not provided for
a spouse or for dependants. This additional lump sum may also be
provided under trust arrangements, but if it relates to DWP contributions,
it must fall into the individual's estate by being paid to the legal
personal representatives
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