The Taxation of Pension Schemes (Transitional Provisions) Order 2006

Lump sums — serious ill-health

39.—(1) This article applies to a lump sum—

(a) paid to a member in circumstances of the member’s serious ill-health; and

(b) which satisfies the requirements set out in sub-paragraphs (a) to (d) of article 38(1).

(2) There is no charge to tax under Part 4 on a lump sum to which paragraph (1) applies.

(3) A lump sum is paid in circumstances of the member’s serious ill-health if—

(a) before it is paid the scheme administrator, or the administrator of the scheme which became a registered pension scheme on the 6th April 2006, received evidence from a registered medical practitioner that the member is expected to live for less than one year; and

(b) all of the member’s uncrystallised rights under the scheme making the payment, other than those which are—

(i) required to be maintained in order to meet contracted-out rights or safeguarded rights, or

(ii) retained by the scheme in accordance with its rules as they stood immediately before the 6th April 2006 to provide benefits for the member’s dependants,

are paid out as a lump sum.

(4) In paragraph (3)(b)(i)—

“contracted-out rights” means—

(a)

entitlement to payment of, or accrued rights to—

(i)

guaranteed minimum pensions within the meaning of section 8(2) of the Pension Schemes Act 1993(1); and

(ii)

a pension in respect of protected rights within the meaning of section 10 of that Act(2);

(b)

section 9(2B) rights within the meaning of regulation 1(2) of the Occupational Pension Schemes (Contracting-Out) Regulations 1996(3), or

(c)

any of the rights in sub-paragraphs (a), (b) or (c) which themselves derive from any of those rights which have been the subject of a transfer payment; and

“safeguarded rights” have the same meaning as in section 68A of the Pension Schemes Act 1993(4).

(5) In the application of this article to Northern Ireland, a reference to a provision applying only in Great Britain shall be construed as a reference to any provision having corresponding effect in Northern Ireland.

(1)

The definition of “guaranteed minimum pension” was amended by paragraph 1 of Schedule 1 to S.I. 2005/2050.

(2)

Section 10 was amended by paragraph 25 of Schedule 5 to the Pensions Act 1995 (c. 26), paragraph 36 of Schedule 1 to the Social Security Contributions (Transfer of Functions, etc.) Act 1999 (c. 2), section 32(2) of the Welfare Reform and Pensions Act 1999 (c. 30) and paragraph 22(2) of Schedule 11 to the Proceeds of Crime Act 2002 (c. 29).

(3)

S.I. 1996/1172. The definition of “section 9(2B) rights” was substituted by paragraph 4(2) of Schedule 1 to S.I. 1997/786 and amended by S.I. 1999/3198.

(4)

Section 68A was inserted by section 36 of the Welfare Reform and Pensions Act 1999.