Making the decision to withdraw your entire pension as a single lump sum is commonly referred to as ‘trivial commutation.’ However, it’s important to note that the government has strict rules determining who is eligible for this option, typically limiting it to individuals with smaller pension funds.
Eligibility
The eligibility criteria for trivial commutation is different, depending on whether you are currently paying in, have deferred benefits or are receiving a pension.
If you paid into the Local Government Pension Scheme (LGPS) before 6 April 1997, you must be at age 60 for a woman, or 65 for a man to be eligible for trivial communication.
However, if you paid in on or after 6 April 1997, you must be at least age 55.
If you are currently paying into the LGPS, and are considering retiring and taking your pension, you may be eligible for trivial commutation when you leave as long as;
- you trivially commute all of your LGPS pensions at the same time
- any trivial commutation payments you received from other pension schemes were paid to you in the last 12 months (unless you received them before 1 April 2006)
- you have not used up all of your lifetime allowance
In addition to this initial criteria, either:
- the value of all your pensions, including those outside of the LGPS apart from State Pension, cannot be more than £30,000
or, if you are receiving a trivial commutation payment from the LGPS only:
- the value of all your LGPS pension benefits, including those held outside of Devon and Somerset Pension Fund, is less than £10,000
- you have not transferred any pension out of the LGPS in the last three years, and
- you are not a ‘controlling director’ or someone connected with a ‘controlling director’, of an LGPS employer.
To check your eligibility, we will need details of your other pension pot values held outside of the LGPS. You will need to request this directly from your other pension providers.
The value of your pension pot
In order to determine if you meet the criteria for trivially commuting your pension within the LGPS, you will need to calculate the value of your pension pot. This calculation involves the following components:
20 x annual pension + automatic lump sum (if applicable) + value of AVC fund (if applicable)
To obtain the exact value of your pension pot or the amount of lifetime allowance your pension utilizes, you can contact your previous pensions administrators/providers, or reach out to Peninsula Pensions for assistance. They will be able to provide you with the necessary information upon request.
How much you will receive
The amount you receive from your pension pot may differ from its current value.
Determining the payment for trivial commutation can be a complex process. We calculate this payment using factors provided by the Government Actuary’s Department (GAD), taking into account your age and the value of your pension.
Please note that Income Tax will be deducted from the payment you receive. If you haven’t received your pension payment yet, you will typically be able to receive 25% of the trivial commutation payment tax-free, while the remaining amount will be subject to Income Tax.”
If you would like to explore the option of trivial commutation in more detail, we recommend reviewing the eligibility criteria. If you believe you meet the requirements, please select the ‘Contact us’ option labeled ‘Option 15: Trivial Commutation Enquiry’ on your online Pension Dashboard. Our team will be able to provide you with an estimate of the potential lump sum amount you may receive.
You can find additional information regarding tax on trivial commutations in the HMRC Pensions Tax Manual. This manual provides detailed guidance and regulations related to pension taxation. It can be a valuable resource for understanding the specific tax implications of trivial commutations.
Things to Consider
Before making a decision regarding a trivial commutation payment, it is crucial to carefully consider whether it aligns with your best financial interests.
Opting for a one-time lump sum payment entails the following implications:
- you will not receive monthly payments
- there will be no liability for you in the LGPS
- if you were to pass away before your spouse, civil partner or cohabiting partner, they would not receive a survivor’s pension.
For further information on trivial commutations, you can visit the MoneyHelper website. They provide comprehensive details and resources to assist you in making an informed decision.