RPSM09104610 - Technical Pages: Member benefits: Lump sums: Serious ill health lump sum: Conditions for payment

Payment of a serious ill-health lump sum

If a member is suffering from serious ill-health (as defined below) then, provided certain conditions are met, the scheme administrator may commute any pension entitlement that member holds under the scheme and pay the member their entire benefit entitlement under an arrangement as a lump sum. This is referred to in the legislation as a serious ill-health lump sum. Although a serious ill-health lump sum would in many cases be obtained from commuting the pension entitlement the legislation does not confine the source of the lump sum in this way. A serious ill-health lump sum could therefore be provided under a term life policy if so desired.

Conditions that must be met for a payment to be a serious ill-health lump sum

There are five conditions that all must be met in order for a payment to be treated as a serious ill-health lump sum. These are as follows

• Before making the payment the scheme administrator has received written evidence from a registered medical practitioner (as defined below) confirming that the member is expected to live for less than one year.
• The member has not used up all of their lifetime allowance at the point the payment is made. RPSM09104630 explains the position where the payment, once made, actually breaches the 100% level of the member’s available lifetime allowance.
• The payment extinguishes the member’s entitlement to benefits under the arrangement (so all of the benefits under the arrangement must be commuted and paid as a serious ill-health lump sum).
• The payment is made before the member reaches their 75th birthday (although there is no minimum age limit on payment of a serious ill-health lump sum), and
• The payment is made in respect of what the legislation refers to as an uncrystallised arrangement (or arrangements) (see RPSM09104620).

A registered medical practitioner

A registered medical practitioner means a fully registered person within the meaning of the Medical Act 1983. However, in circumstances where the member ill-health RPSM08100070 or serious ill-health as described above is overseas, the term "registered medical practitioner" may also be interpreted for the purpose of the tax rules as including a certificate from someone with equivalent overseas qualifications.

We would always expect that a member in the UK would need to have evidence from a UK registered medical practitioner.