RPSM09300100 – Scheme Administrator Pages: Member benefits: Lump sum payments

A pension commencement lump sum

When a member becomes entitled to certain authorised pension benefits under an arrangement under a registered pension scheme then, provided certain conditions are met, the scheme may also provide that member with a level of tax-free lump sum at that time (or within the period starting 6 months before and ending 12 months after that pension entitlement arising).

Such a payment is referred to in the legislation as a pension commencement lump sum.

There are various conditions that a lump sum paid by a scheme to a member must meet in order to be a pension commencement lump sum (and therefore be paid tax-free). These conditions are set out on RPSM09104130.

The legislation caps payment of a pension commencement lump sum to a permitted maximum. Anything paid beyond that permitted maximum is not a pension commencement lump sum (see RPSM09104180).