NIM02769 - 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 Social Security (Contributions) Regulations 2001 (as inserted by regulation 8(7) of the Social Security (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 payment out of an employer-financed retirement benefits scheme is disregarded in the calculation of earnings if, had the scheme been a registered pension scheme (NIM02715), the payment would have been an authorised member payment of the type shown there. One of those types of payment is a pension commencement 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 the period beginning 6 months before and ending one year after the day on which the member becomes 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:

• income withdrawal (NIM02768)
• a lifetime annuity (NIM02768)
• a scheme pension (NIM02767).

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