PSI10.2.19 - Retirement before Normal Retirement Date: Incapacity Retirement - Continued Life Cover

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

Some schemes give employees continued life cover for the period between incapacity retirement and NRD. Such cover is permissible for all members retiring in these circumstances, ie, it is not limited to continued rights members or Finance Act 1989 members who joined the scheme prior to 1 October 1991 (see PSI6.2.2).

Where such cover is provided it must not:

1. extend beyond NRD; nor
2. exceed the pre-retirement cover.

[PN 7.26]

In relation to b., however, it is permissible for the cover to be increased between the date of incapacity retirement and NRD in proportion to the increase in the Retail Prices Index for that period.

In these circumstances the cover will not be regarded as a retirement benefit and need not be taken into account for limits purposes (see PSI6.2.5-7). The benefits from such cover may be distributed in accordance with PSI11.2.22. Premiums paid in respect of continued life cover provided in these circumstances may be referred to pension business (see PSI17.1.7-9).