Glossary · UK
What is Serious Ill-Health Lump Sum?
A pension lump sum paid to someone with a terminal illness and a life expectancy of less than 12 months, normally tax-free up to the Lump Sum and Death Benefit Allowance.
Full Definition
A serious ill-health lump sum lets someone with an uncrystallised (not yet accessed) pension take their entire pot as a single cash payment where a registered medical practitioner certifies they are expected to live for less than 12 months. Where the member is under age 75, the whole payment is normally tax-free provided it does not exceed the available Lump Sum and Death Benefit Allowance of GBP 1,073,100 (2026/27); any excess above that allowance is taxed as income. Where the member is 75 or over, the entire lump sum is taxed as income at the member's marginal rate rather than being tax-free, which is an important planning distinction from the under-75 rules. Taking a serious ill-health lump sum extinguishes the pension arrangement -- there is no ongoing drawdown or annuity -- so it is typically used only where the member genuinely needs, or their family will benefit from, an immediate cash sum rather than continued retirement income. Scheme rules vary on whether this option is offered, and some defined benefit schemes instead provide an enhanced death-in-service or ill-health early retirement benefit as an alternative route.