RPSM09100430 - Technical Pages:
Member benefits: Overview: Authorised benefits: Payment of a lump
sum benefit to the member through phased retirement
Payment of a lump sum benefit to the member through phased
retirement
Payment of a pension commencement lump sum
To be treated for tax purposes as a
pension commencement lump sum the
individual’s entitlement to the payment must be linked to an
arising entitlement to some form of pension benefit. The maximum
amount that can be paid is linked to the value of that arising
pension entitlement. Each time a ‘slice’ of pension
benefits is crystallised, it can justify a lump sum related to it.
Providing that lump sum satisfies the conditions necessary to
qualify as a pension commencement lump sum, it can be paid out free
of income tax. This allows an individual’s benefits to be
‘phased in’ over a period.
If a member receives a lump sum which is intended to be a
pension commencement lump sum, but then dies in the following 6
months and before the entitlement to the relevant pension actually
arises, the legislation deems the entitlement to the lump sum to
have arisen immediately before the member’s death, thus
making the lump sum an authorised payment. The amount of lump sum
paid must however still be within the available portion of the
deceased member’s lump sum allowance.
Other lump sum payments: exceptions
| [Paras 4(1)(d), 5(1)(d) and 7(1)(d), Sch 29] |
There are certain circumstances where a member’s benefits
cannot be phased in this way within an
arrangement. This is where pension benefits are
being wholly commuted to a lump sum on grounds of serious
ill-health or triviality, or where there is a refund of the
member’s contributions under an
occupational pension scheme as the member has
completed less than 2 years pensionable service.
Where the following lump sums are paid the lump sum payment
must extinguish all that member’s entitlement under the
registered pension scheme concerned
