NIM02771 - 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 Social Security (Contributions) (Amendment No. 2) Regulations 2006)

Sections 164(b) and 166(1) of, paragraph 1 of Schedule 28 and paragraphs 1-3 of Schedule 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 ( see NIM02715), the payment would have been an authorised member 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 disregarded in the calculation of earnings.