RPSM09204040 - Member Pages: Member Benefits: Lump Sum Benefits: Lump sums that exceed the statutory limits

Lump sums that exceed the statutory limits

What happens when the limits are exceeded?

If a registered pension scheme makes a lump sum payment that does not fit into any of the categories of authorised member payment it is an unauthorised member payment, and will be taxed as such (see RPSM04104040).

Where a scheme makes a lump sum payment that would meet the definition of an authorised lump sum payment, but the amount paid exceeds the limit specified in the legislation, this does not mean that the whole payment becomes unauthorised in all cases.

What happens if the whole payment is not an unauthorised payment?

For the following lump sum payments

• a pension commencement lump sum,
• a short service refund lump sum,
• a refund of excess contributions lump sum, and
• a winding-up lump sum (which is capped to 1% of the standard lifetime allowance at the time of payment),

the part of the payment that is within limits will still represent an authorised lump sum payment, as appropriate. Any excess will not be treated as being part of that lump sum payment, and will become either

• another form of authorised lump sum payment or scheme administration member payment (where it falls within the relevant definition), or
• an unauthorised member payment, and be taxed as such.

For an example see RPSM09204140 outlining how this works where interest is paid on a refund of excess contribution lump sum.

Are there any other kinds of lump sum benefits that can be partly authorised and partly unauthorised?

No. With the other forms of authorised member lump sum payments, either

• the limit is an integral part of the definition (so if the limit is breached the whole payment falls out of the definition becoming an unauthorised payment, as with the payment of a trivial commutation lump sum), or
• there are no limits as such, although the amounts paid are tested for lifetime allowance purposes (as with the payment of a stand alone lump sum, serious ill-health lump sum or lifetime allowance excess lump sum), any excess in these cases gets taxed with a lifetime allowance charge.