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