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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: serious ill-health lump sums

Paragraphs 8(b), 10(4)(b) and (5)(c), 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 (“RPS”;NIM02715), the payment would have been an authorisedmember payment of the type shown there. One of those types of payment is aserious ill-health lump sum which would have satisfied the following conditions:

  • before it is paid, the responsible person (NIM02765) has received written medical evidence from a registered medical practitioner that the employee is expected to live for less than one year
  • the payment extinguishes the employee’s entitlement to benefits under the arrangement
  • it is paid before the individual has reached age 75.

Unlike a pension commencement lump sum (NIM02770),there is no limit on the amount of a serious ill-health lump sum that may be disregardedin the calculation of earnings.

  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.