What is Pension Triviality?
Taking a small pension as a cash lump sum
In some circumstances you may be able to take the whole of your pension as cash, whether your pension is defined benefit or defined contribution. Taking cash in this way is called taking a ‘trivial commutation’ or ‘trivial lump sum’. Because of the new flexible rules for defined contribution schemes, trivial commutation only applies to defined benefit schemes from 6 April 2015 onwards.
Rules on taking a small pension as a cash lump sum
You may be able to take the whole of your pension as a trivial commutation lump sum if: You’re aged at least 55, or you’re retiring at an earlier age because of ill-health; and the value of all your defined pension benefits (ignoring any State Pension) when added together do not exceed £30,000 in total. You may be able to take the whole of your pension as a small pot if: You’re aged at least 55, or you are retiring at an earlier age because of ill-health; and the value of your pension arrangement does not exceed £10,000. Unlike trivial commutation, you do not have to take into account any other defined pension benefits you may have, when giving up a pension for a small pot. The Government will allow you to give up three pension arrangements under the small pots rule. Why would I want to cash in my Pension under this rule? The government generally considers a pension fund of less than £30,000 to be a relatively small amount, which is why these rules were introduced in the first place. For example, if a person aged 60 has a fund of £30,000 to provide a pension for life, based on current income rates this would give him approximately £134.50 per month. *This is for illustration purposes only and is subject to market change. On the other hand, if that person was to take the entire fund as a lump sum under pension triviality, it would take just over 18 years for the monthly amount to pay more. In other words, it would take 18 years before you are better off by taking the income instead of the cash sum.
Tax
If you do cash in a pension under pension triviality rules, normally a quarter of the amount paid is tax-free with the remainder potentially subject to income tax. You should remember that future rates of tax can change and actual tax treatment will depend upon your individual circumstances at the time.
What if I am getting state benefits?
If you are in receipt of any means tested state benefits, particularly the pension credit, by taking the additional taxable lump sum those benefits are likely to be affected. For further information on Pension Triviality or to begin the process complete your details on the Quick Start form to the right of this page and we will contact you at a convenient time for an initial discussion on your circumstances or call us on 028 91 856991