NIM02773 - 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: payments set out in regulations

Paragraphs 8(b), 10(4)(c) 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(f) to Finance Act 2004

The Registered Pension Schemes (Authorised Member Payments) (No.2) Regulations 2006 (SI2006/571)

Articles 38 and 39 of the Taxation of Pension Schemes (Transitional Provisions)Order 2006 (SI 2006/572)

The Registered Pension Schemes (Authorised Payments - Arrears of Pension)Regulations 2006 (SI 2006/614)

NIM02765 explains that, subject to the satisfaction of other conditions, a payment out of an employer-financed retirement benefits scheme can only be disregarded if, had the scheme been a registered pension scheme (“RPS” NIM02715), the payment would have been an authorised member payment of the type shown there.

Section 164(f) allows HMRC to make regulations to prescribe other types of authorised member payments in addition to those specified in section 164(a)-(e) (authorised pension benefits) and (authorised lump sum benefits)). So far as relevant for NICs purposes, SIs 571, 572 and 614 contain additional types of authorised member payments.

In simple terms, those payments are ones to which an employee was entitled before 6 April 2006 but which are not paid until on or after that date. Specifically, they are:

  • a serious ill-health lump sum payment which satisfies the following conditions:

  • the whole of it is paid in accordance with the rules of the existing scheme as they stood immediately before 6th April 2006
  • it is paid on or after 6th April 2006 and before 6th July 2006
  • the employee became entitled to it before 6th April 2006
  • if the payment had been made before 6th April 2006, there were no grounds for HMRC to withdraw its approval of the scheme
  • 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 all the employee’s rights to benefits under the scheme making the payment except those which it is required to keep:

a. in order to meet certain contracted-out entitlements and rights (ie, if the pension scheme is contracted-out of the State Pension scheme) under the Pensions Schemes Act 1993 and the Occupational Pension Schemes (Contracting-Out) Regulations 1996 (SI 1996/1172) (SI 571 and articles 38 and 39 of SI 2006/572).

b. in accordance with the scheme’s rules as they stood immediately before 6th April 2006 to provide benefits to the employee’s dependants.

  • arrears of accrued pension:
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    • to which the employee is entitled at the time that it starts to be paid; and
    • which is taxable as pension income (SI 614).

Note. Do not confuse the serious ill-health lump sum referred to above with that covered in NIM02771. A key difference is that the above must be paid before 6th July 2006.

Words in bold are defined in the Glossary to the Pensions Tax Manual (PTM000001). They have the same meaning for NICs purposes unless otherwise stated.