RPSM09100340 - Technical Pages: Member benefits: Overview: Authorised benefits: Pension commencement lump sum
A pension commencement lump sum
| [s166][Paras 1 to 3 and 12, Sch 29] |
If a lump sum payment by a
registered pension scheme falls within the
conditions for a
pension commencement lump sum, it may be paid to
the member free of income tax.
The conditions are that
- the member
- has become entitled to the lump sum before their 75th birthday, and
- is entitled to the lump sum in connection with becoming entitled to a scheme pension, a lifetime annuity or unsecured pension under the scheme, and
- has reached normal minimum pension age at the time of the payment (unless the benefits are paid on the grounds of ill-health), and
- has all or part of their lifetime allowance available at the time of the payment
- the date of payment is not more than six months before and not more than one year after the day on which the member becomes entitled to the lump sum (but see below)
- the payment is not an excluded lump sum (see RPSM09104160)
- the payment does not exceed the permitted maximum (see RPSM09104220).
A lump sum paid where the arising pension is not a fresh entitlement but has simply followed on from an earlier but different form of pension benefit is not a pension commencement lump sum (for instance, where unsecured pension funds are used to purchase a short term annuity, lifetime annuity or scheme pension, or following a transfer of crystallised rights to another scheme).
Meaning of ‘entitlement’
Entitlement to a pension commencement lump sum for the purposes
of the tax legislation is normally deemed to arise immediately
before the entitlement to the related scheme pension, lifetime
annuity or unsecured pension.
However, where the member receives a lump sum in anticipation
of becoming entitled to a relevant pension not more than 6 months
later, but then dies within that 6 months and before actually
having become entitled to the scheme pension, lifetime annuity or
unsecured pension, the lump sum payment may still be treated as a
pension commencement lump sum. The fact that the scheme pension,
lifetime annuity or unsecured pension never in fact crystallises
because of the member’s death does not matter, as long as the
following applies
- at the time of the payment of the lump sum it was anticipated that the member would become entitled to a relevant pension within 6 months following payment of the lump sum,
- the lump sum paid does not exceed the available portion of the member’s lump sum allowance, (see RPSM09104510)
- all the other conditions are satisfied.
Entitlement to the pension commencement lump sum in such a case
is deemed to have arisen immediately before the member’s
death.
For more information about the meaning of
‘entitlement’, please see pages
RPSM11102050 and
RPSM11102055.
| Glossary ( RPSM20000000) |
