In pensions, this is known as a ‘trivial’ pension. Trivial commutation simply means taking the pension fund as a lump sum. Triviality rules are the rules which apply to these small sums.
As long as you’re over 60, and the total benefit values of all your pensions is less than £18,000 (2011/12), you may be able to take the whole £18,000 in one go.
Sort of.
The first 25% is tax free. The balance of 75% will be taxed as if it were income.
And you don’t get a choice in the matter as HMRC have instructed pension scheme providers to deduct the tax before sending it to you!
If you happen to be a high or higher rate tax payer at the time, you’ll also be paying the additional tax rate over and above the 20% that’s being deducted by the pension provider.
An extra rule for non-occupational schemes is that if you have a one or two small pension pots of £2000 or less in each, you can take these under triviality rules as well.
If you’re considering taking your pension benefits under triviality rules, be very careful and take advice from an appropriately qualified adviser.
Getting it wrong could leave you liable to an unauthorised payment charge of 40% on the amount of the unauthorised payment – something possibly worth trying to avoid!
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