A lump sum pension payment will be taxed as ordinary income the year it's paid unless you roll it over into a traditional IRA or another qualified retirement plan.

When a lump sum distribution check is written directly to you, the payer must withhold 20 percent to cover any potential tax liability. To avoid actually paying any tax liabilities, you have 60 days to deposit the sum in a qualified IRA or another employer's plan. You can roll over a sum equal to the amount paid to you plus the withholding, but you must get funds equal to the amount withheld within 60 days from another source to add to the distribution you received. You'll be able to recover the withheld money when you file your tax return. If you don't replace the withheld amount in your rollover, it will be treated as income for your distribution year. If you're not yet 59 1/2, the withheld portion also will be considered an early distribution subject to a 10-percent tax penalty.

Source: http://thefinancebase.com/pension-rollover-rules-5864.html