Introduction
An individual is only eligible for trivial commutation if all of their pension benefits, both those in payment and those not yet in payment, are worth less than a certain amount set by the government.
An individual can only trivially commute pensions within a single 12-month period, which means for someone with several small pensions, if they elect to trivially commute one pension, they have 12 months in which they could commute other pensions, should they so wish.
Before Budget 2014, members could trivially commute pensions for lump sums if their aggregate benefits were less than £18,000 or benefits with an individual employer were less than £2,000.
Post Budget, the limits have been significantly lowered and therefore the options that should be considered by individuals wishing to take a lump sum now are different. Anyone who has benefits that qualify for trivial commutation should carefully weigh up the pros of the short-term lump sum compared to the long-term income.
This guide explores the new rules for trivial commutation, who should consider this option and how the changes to lump sum red tape work with the future shake-up of access to pension pots.
Contributing material from; Ed Wood, Chartered Financial Planner at Saunderson House; Andrew Tully, pensions technical director of MGM Advantage; Sharon Mitchell, head of UK administration operations at JLT Employee Benefits; Tim Gosden, head of strategy for Legal & General’s Individual Retirement Solutions Business; and David Brooks, technical consultant at Broadstone Corporate Benefits.
