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HMRC internal manual

National Insurance Manual

Class 1 NICs: earnings of employees and office holders: retirement benefits schemes from 6th April 2006: employer-financed retirement benefits schemes: payments from such schemes: authorised member payments: pension commencement lump sums

Paragraphs 8(b), 10(4)(b) and (5)(b), and (6) of Part 6 of Schedule 3 to the SocialSecurity (Contributions) Regulations 2001 (as inserted by regulation 8(7) of the SocialSecurity (Contributions) (Amendment No. 2) Regulations 2006)

Sections 164(b) and 166(1) of, paragraph 1 of Schedule 28 and paragraphs 1-3 ofSchedule 29, as modified by paragraph 10 above, to Finance Act 2004

NIM02765 explains that, subject to the satisfaction of other conditions, a paymentout of an employer-financed retirement benefits scheme is disregarded in the calculationof earnings if, had the scheme been a registered pension scheme (NIM02715), the payment would have been an authorisedmember payment of the type shown there. One of those types of payment is a pensioncommencement lump sum which would have satisfied the following conditions:

  • the individual becomes entitled to it in connection with their becoming entitled to a “relevant pension”
  • it is paid within three months of the individual becoming entitled to it
  • it is paid when the individual has reached normal minimum pension age unless they satisfy the ill-health condition (paragraph 1 of Schedule 28; RPSM08100070);
  • it is paid before the individual has reached age 75
  • the amount must not exceed the “permitted lump sum” (“PLS”; NIM02770). If the amount of the lump sum exceeds the PLS, then no amount can be disregarded in the calculation of earnings.

Here, “relevant pension” means:

For the meaning of “normal minimum pension age”, see NIM02767(pension rule 1).

  Words in bold are defined in the Glossary to the Registered Pension Schemes Manual (RPSM20000000). They have the same meaning for NICs purposes unless otherwise stated.