Employment Tax

Tax treatment of payments from a pension scheme in the hands of the member

Produced by Tolley in association with John Hayward
  • 22 Mar 2022 12:28

The following Employment Tax guidance note Produced by Tolley in association with John Hayward provides comprehensive and up to date tax information covering:

  • Tax treatment of payments from a pension scheme in the hands of the member
  • Introduction
  • Pension payments
  • Pension rule 1
  • Pension rule 2
  • Pension rule 3
  • Pension rule 4
  • Pension rule 5
  • Lump sum rules
  • Taxation of pension payments
  • More...

Tax treatment of payments from a pension scheme in the hands of the member


The purpose of this note is to consider the tax treatment in the hands of the member of the various authorised payments that are permitted from a registered pension scheme. It covers various lump sums, as well as regular payments, and looks at the tax treatment including whether PAYE has to be applied.

Many of these payments are considered in other notes, but not all of them as some are encountered relatively rarely in practice.

What follows is a full list of authorised lump sum and income payments (the pension rules and the lump sum rules) followed by an outline of the applicable tax treatment.

Pension payments

The following pension rules are in FA 2004, s 165 (with further explanation in FA 2004, Sch 28).

Pension rule 1

‘No payment of pension may be made before the day on which the member reaches normal minimum pension age, unless the ill-health condition was met immediately before the member became entitled to a pension under the pension scheme.’

Normal minimum pension age (NMPA) was 50 until 5 April 2010, 55 thereafter from 6 April 2010 to 5 April 2028 and 57 from 6 April 2028. There are earlier than normal permitted minimum pension ages for those in occupations that traditionally retire earlier, such as members of the armed forces, the police or fire services, or models, dancers and sports people, as set out in SI 2005/3451.

Pension rule 2

‘If the member dies before the end

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