For an individual with, say, one pension fund worth £29,000 and a second pension worth £2,000, you could take a small pot lump sum from the smaller fund and then trivially commute the larger pot.
As the small pot rules are in addition to the overall triviality limit, Mr Tully says if these are used in the right order – and people have four different arrangements with suitable fund values with providers/schemes that have changed their rules – it does allow up to £60,000 to be taken.
However, Mr Tully says while this is theoretically possible it is unlikely to be suitable as at least some of the payment would be liable to higher rate tax, potentially much of it for an average earner.
Though not common, Mr Wood says it is possible to trivially commute already crystallised pension benefits. In this instance, he says a 25 per cent lump sum could have been taken previously and, in this instance, the whole payment would be subject to tax.
If a pension in payment is commuted then the whole lump sum is taxable through PAYE, says Sharon Mitchell, head of UK administration operations at JLT Employee Benefits.
