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Guide to Trivial Commutation post-Budget



    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.

    In this guide


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. What was the trivial commutation limit increased to at this year’s Budget?

    2. What has the small pots size been increased to, regardless of total pension wealth?

    3. What multiple is applied to accrued benefits to value defined benefit (DB) pension savings?

    4. What is the total amount that can be taken under the new trivial commutation and small pot rules?

    5. What amount of annuity income can be taken on average from pots that could be taken under the triviality rules, according to Mr Brooks?

    6. If the current provider does not offer trivial commutation, what does Ms Mitchell suggest?

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