Taxation on ill health pension enhancement

Snakes_Belly

I friend of mine has recently received their figures regarding ill health retirement from a LGPS.  As this person is quite a number of years away from retirement there has been a substantial ill health enhancement. The level has been at the highest tier. 

What has come as quite a shock to them is that the enhancement will be subject to the annual allowance of £40,000.00 and even going back for the three previous years it would appear that there is going to be a large tax liability even though their lifetime allowance has not been exceeded.

As I am from a financial background (although my knowledge is somewhat out of date) they have asked me about this. It does seem very unfair to me as this person is unlikely to undertake any employment in the future. It's not as if they are earning a high salary and want to pay in over the allowance. This situation has been created because they have been seriously ill which has left them unable to work.

Any comments regarding how the level of tax charge could be mitigated would be appreciated. Thank you.     

Brie

I'm struggling to understand why a high level of income (whatever the source) wouldn't be subject to a high level of taxation.  It's unfortunate if there's been, say, 3 years paid in one lump that sends the income way too high but I thought there would be some way to average that over the last 3 years or similar.  

And while I sympathise someone needing to collect an ill health pension I do think that they need to be treated by the same tax rules as the rest of us.  Otherwise the temptation to fraud may be immense.  (yes I do know what cartwheels one needs to do over a number of years to actually get this sort of pension in place)

molerat

Duplicate thread being answered here

https://forums.moneysavingexpert.com/discussion/6398061/retirement-on-ill-health-pension-taxation#latest