RPSM09104050 - Technical Pages: Member benefits: Lump sums: Overview: Authorised lump sum payments and the lifetime allowance

Authorised lump sum payments and the lifetime allowance

Lump sum payments that use up lifetime allowance

[s216(1), BCE 6][Para 1((1)(b), 4(1)(b), 11(a) and 12(2), Sch 29][Para 15, Sch 32]The following authorised lump sum payments trigger a lifetime allowance test (through benefit crystallisation event 6 (BCE 6)

• a pension commencement lump sum,
• a serious ill-health lump sum, and
• a lifetime allowance excess lump sum.

These are collectively referred to in the legislation as ‘relevant lump sums’.

The amount that crystallises for lifetime allowance purposes upon payment of the above lump sums is the amount actually paid.

Before a pension commencement lump sum is paid the scheme administrator needs to establish whether the member has sufficient lifetime allowance available to cover the payment (and any other benefit under the scheme which the lump sum is connected with). In contrast, a lifetime allowance excess lump sum can only be paid where there is no available lifetime allowance and there is a chargeable amount arising at the BCE). With the payment of a serious ill-health lump sum the individual has to have available lifetime allowance for the payment to be made, but the size of the payment is not limited by the level of lifetime allowance actually available (see RPSM09104630).

Lump sum payments that do not use up lifetime allowance

Payment of any of the other four authorised member lump sums does not trigger a lifetime allowance test through BCE 6, and the amount paid will not use up any of the member’s lifetime allowance.

A trivial commutation lump sum or a winding-up lump sum may, however, only be paid where the member has not exhausted their entire lifetime allowance. The member must have available lifetime allowance. This restriction does not apply to the payment of a short service refund lump sum or refund of excess contribution lump sum.

For the avoidance of doubt, where the member has used up 100% of their lifetime allowance and a short service refund lump sum or refund of excess contribution lump sum is paid, those payments will not be subject to a lifetime allowance charge.