Cashing in small pensions

If you have a small pension you may be able to cash it in for a final cash lump sum called a ‘trivial commutation’. 

Members with very small pensions have for some years been able, if they wish, to convert them into a one off taxable cash payment, provided that they meet certain qualifying conditions specified by HM Revenue and Customs (HMRC). This member option is known as 'trivial commutation'. 

To be considered for a trivial commutation you must meet all of the following criteria:

  1. You must be aged over 55 (or have retired at an earlier age because of ill-health);
  2. The value of all your pension benefits (Including defined contribution pensions and pensions already in payment, but ignoring any State Pension) when added together must not exceed £30,000 in total;
  3. You cannot have already exchanged benefits in any other pension arrangements more than a year before your payment from the Scheme is made (unless the previous payment was made before 6 April 2006);
  4. If you have a GMP then you will not be able to apply for trivial commutation until you reach your GMP payment age (which is 65 for men and 60 for women); and 5) You must have sufficient ‘Lifetime Allowance’ available in order for the lump sum payment to be made. 

What happens if you have more than one defined benefit pension (such as in the Scheme) for trivial commutation purposes

If you give up more than one pension for trivial commutation purposes, you do not have to take them all at the same time. You have a period of 12 months from the date you were paid the first lump sum payment to commute the rest. If you fail to do so, you lose this option.

Tax treatment of taking a trivial commutation lump sum:

If benefits are not in payment (such as your Scheme deferred pension), you may have the option to take 25% of the pension value as a tax free cash sum. The remainder is added to the rest of your taxable income in the tax year in which you take it when determining any income tax liability.

If you have a small pension and are interested in cashing in your pension please contact the Scheme Administrator.

The Lifetime Allowance

The Lifetime Allowance (LTA) was introduced in 2006, and is a limit on the amount of pension benefits that can be drawn from pension schemes, whether lump sums or retirement income (pension), without triggering an additional tax charge. The LTA in the 2016-2017 tax year is £1m.

While most people aren’t affected by the LTA, if the value of your pension benefits is approaching or above the LTA, you should seek advice from an independent financial adviser.