Serious ill-health lump sum payments
Serious ill-health lump sum payments

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Serious ill-health lump sum payments
  • When is a serious ill-health lump sum payable?
  • Tax treatment and age 75 threshold
  • Calculation
  • Contracting-out aspects
  • Death benefits
  • Reporting payment of a serious ill-health lump sum to HMRC
  • Scheme rules

When is a serious ill-health lump sum payable?

Under the Finance Act 2004 (FA 2004), Sch 29, para 4, a scheme administrator may commute the whole of a member’s pension entitlement into a lump sum, known as a serious ill-health lump sum, if the following conditions are satisfied:

  1. before it is paid, the scheme administrator has received evidence from a registered medical practitioner that the member is expected to live for less than one year. The term 'registered medical practitioner' refers to a person who is registered under the Medical Act 1983 or, where the member in serious ill-health is overseas, a person with equivalent overseas qualifications

  2. all or some of the member’s lifetime allowance is still available. The amount of the serious ill-health lump sum is not limited by the amount of lifetime allowance left. If the serious ill-health lump sum exceeds the member’s lifetime allowance, the excess would become subject to a lifetime allowance charge equal to 55% of the excess under FA 2004, ss 214–219. In practice, the scheme administrator would usually pay the serious ill-health lump sum net of any lifetime allowance charge due, provided the scheme rules allow for this

    For further information on the lifetime allowance, see The Finance Act 2004, A-day and the pensions tax regime.

  3. for payments made on or

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