Yes. HM Revenue & Customs (HMRC) has strict rules about payment of the lump sum on death benefit. The lump sum must be paid within two years of the date that the Scheme was first notified of the members death in writing. In addition to this, if the member had not yet claimed their pension benefits and are due a posthumous award the pension commencement lump sum must be paid within one year.
After either the two year or one year period the lump sum will be subject to a HMRC tax charge of up to 45%.
NHS Pensions has no discretion and must deduct the tax charge from the lump sum.
A lump sum on death benefit is payable on the death of an active member who dies before reaching age 75. Once they reach age 75 the lump sum will be converted to an annual pension and paid to their dependant.
If a member dies after reaching age 75 and they were 75 on or before 5 April 2011 the lump sum will be converted to an annual pension paid to their dependant.
If they die after reaching age 75 and were 75 on or after 6 April 2011 the lump sum is subject to a lump sum death benefit charge of 45% if paid to an organisation or the marginal rate of the recipient. This tax charge is deducted from the lump sum before payment.