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*For pensions in payment a calculation is used to derive a fund value (see below). |
We do all the work for you - We calculate your Triviality entitlement - We deal with your pension providers - We keep you updated |
TRIVIAL COMMUTATION WILL CEASE FROM APRIL 2015
This page is full of information on Trivial Pensions and the rules surrounding them.
If you are one of the many people who don’t like dealing with pension companies and want someone to deal with your pension companies and do all the paperwork for you, then our trivial pension service may be what you are looking for.
We will make sure that all of the money available from your pension funds goes to you. You pay us £250 once the business has completed, or if you want to pay in advance we reduce this to £200. If the business does not complete, for any reason, then you owe us nothing, and in this instance, any money paid to us will be returned.
Please see below for our terms and conditions relating to our Trivial Pension Service. |
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While governments in the main try to prevent people from taking all of their pension fund in one go, there are certain circumstances where they feel that the benefit a customer may get from buying an annuity (income for life) or other retirement product is so small that the customer may get more benefit from taking their fund as a lump sum.
The ability to exchange all of your pension for a lump sum is known as Trivial Commutation, although the term Trivial Pension is more commonly used.
While most pension providers offer trivial commutation, it is not a right, and some providers may not be able or willing to pay it. This is more likely to be the case for pensions in payment. |
Annual Limit |
The annual limit, which is currently £30,000, is set by the government and is reviewed annually, although it is not guaranteed to go up each year.
If your pensions are all still invested and you have not yet started to take any income from them, then the calculation is simple. All you need to do is add together the fund value of all your pensions to see if it less than the annual limit.
For pensions that are in payment, then the calculation is more complex. This is discussed later on this page. |
Taxation |
| If your entire pension fund is as yet untouched then on trivial commutation, the first 25% of the fund will be paid to you tax free. The remaining 75% of the fund will normally be subject to income tax at your marginal rate. However you may either need to reclaim tax overpayments or make additional tax payments. This will depend on how and who pays your pension to you. |
Pension Fund Provider |
If your pension is paid to you by a private pension company, for example Prudential, they are unlikely to have access to your current tax code. Therefore when they pay you they will use an emergency tax code recognised by Her Majesty’s Revenue and Customs (HMRC). |
Current / Previous Employer |
If your existing or previous employer is to pay you your trivial commutation, they will use the tax code which applied to your earnings immediately before retirement.
Under both of these payment scenarios, no account will be taken of any outstanding tax allowances you may be entitled to. This will mean that the amount of tax deducted is unlikely to be correct. In many cases it will be likely that you have paid too much tax and you will need to reclaim the overpayment. This is not automatic.
No matter who pays you your pension, they are required to provide you with a form called a P45. This will contain details of the trivial commutation and the tax deducted. |
Tax Returns |
The vast majority of people who take advantage of trivial pensions will tend to be people on small incomes and who are not normally required to submit an annual tax return.
If you are required to submit an annual tax return (for example if you are self-employed), then the money received from trivial commutation must be shown on the tax return. |
Reclaiming Overpaid Tax |
If you believe you have paid too much tax you can contact HMRC and request a form P53.
You will need to enter details of any income you have received in the tax year in which you are claiming to be overpaid. If you are only part way through the tax year you may be required to estimate further income for the tax year. This may also result in you providing further information to HMRC at the end of the tax year. |
Trivial Commutation – The Four Key Features |
| 1. |
You must be aged 60 or over |
| 2. |
On the nominated commutation date the value of your calculated pension rights must not exceed the ‘commutation limit’ which is currently £30,000
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| 3. |
The commuted lump sum payment from a registered scheme must extinguish any further entitlement to take benefits i.e. income from the scheme. In other words you must commute it all. You could not commute say half of it and use the other half to buy an annuity. |
| 4. |
All trivial commutations you wish to make must be completed within 12 months of the first payment made to you |
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Calculating your Commutation Limit - £30,000 |
As stated above you will need to work out whether you qualify for trivial commutation by ensuring the value of your pensions is below the £30,000 limit.
It is important that you remember that you need to calculate the value of all your pension funds and not just the one you wish to take a lump sum from. For example a person with a pension fund of £10,000 and another of £28,000 will not qualify for trivial commutation. This is because the value of the pensions combined exceeds the commutation limit of £30,000.
You do not need to include the State Old Age Pension when calculating the commutation limit. |
Pensions Not Yet Paid |
If you belonged to a Final Salary scheme, also known as a ‘defined benefit’ scheme, then the scheme’s pension administrator should be able to provide you with a commutation value. Final Salary schemes are operated by some companies and the pension you would receive is based on your length of service and your final salary . . . of course !
For defined contribution schemes, such as personal pensions and many company schemes, the scheme provider should provide you with regular statements showing the value of your pension. You can write to them for an updated valuation before commuting the pension. |
Pensions in Payment |
Even though you are receiving a pension income, the income / pension provided may allow you to exchange all future rights to an income for a lump sum. None of this lump sum will qualify for a 25% tax free allowance.
Even if you are not looking to commute the pension in payment, you must nevertheless include it in your calculations towards the £30,000 limit.
The annual income you receive must be multiplied by a factor of 20 to give a capital value. You then add the value of any tax free cash you received when you first took the pension. This figure is then added to the value of any other pensions you have whether they are in payment or still invested.
It is important that you understand that the derived figure using the above formula does not represent the amount you will receive as trivial commutation. The amount you are offered by your provider may be more or less than this.
Pensions in payment which were taken out before 6 April 2006 have different calculation rules. For ease of understanding we have not included these here.
As part of our trivial pension service we will perform these calculations for you.
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| Norman started to take an annual income from one of his pensions 3 years ago. He received a tax free lump sum of £3,000 and gets a monthly income of £30pm. |
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He has another pension which is not yet in payment, which is worth £15,000. Question : Norman would like to take the pension worth £15,000 as a trivial commutation. Can he ?
Answer : We first need to calculate the capital value of the pension in payment.
Norman gets £30 per month therefore £360 per annum (£30 X 12 months).
We then multiply this figure (£360) by 20 which equals £7,200. We then add the original tax free lump sum to this figure (£7,200 + £3,000 = £10,200). This gives us the capital value of the pension in payment.
Finally we add the capital value of the pension in payment (£10,200) to the value of the unused fund of £15,000. This gives a total value of ALL Norman’s pensions of £25,200.
This figure is £4,800 below the current commutation limit (30,000), therefore Norman can take all of the £15,000 as a lump sum. |
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| As the Low Incomes Tax Reform Group state “Trivial commutation is full of rules which can trip you up”. Given the time and effort involved in contacting providers and calculating whether the pensions qualify for trivial commutation, our single fee of £250 may save you a lot of time and hassle. It is also possible to receive a 20% discount on our fee by paying at the start of the process. |
Benefits and Tax Credits |
Many benefits are means tested and could be affected by receipt of a capital sum taken from a trivial pension commutation.
If you are in receipt of any state benefits or tax allowances or credits (you can ignore the
state old age pension), you should check how those benefits would be affected by the receipt of a lump sum.
Below are some of the more common means tested benefits and tax credits : |
- Income Support
- Income Based Jobseekers Allowance
- Pension Credit
- Residential/Nursing Care
- Working Tax Credit
- Housing Benefit
- Council Tax Benefit
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Multiple Pension Funds |
| Pension providers may perform limited checks on your entitlement to trivial commutation. Likewise as you are allowed 12 months to commute all of your pension funds, good investment performance could inadvertently mean that the amount you receive from all of the commuted pensions exceeds the £30,000 limit. This is classed as an unauthorised payment by HMRC. This would expose you to a 40% tax charge on all of the lump sum(s) you receive and not just the additional amount. |
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Trivial Commutation - Terms and Conditions |
These terms and conditions run in tandem with our general business terms and conditions contained on this website.
These additional trivial commutation conditions only apply when a customer has selected to use our trivial commutation service.
Where there is a conflict between our general terms and conditions and these terms and conditions for trivial communication, the trivial commutation terms and conditions shall be given precedent if the customer has applied for the trivial commutation service.
The trivial commutation terms and conditions do not apply to any other transactions or services offered by Best Pension Annuity.
When a customer selects to use our trivial commutation service, engaging us by our web forms, telephone, email or post, these terms and conditions are immediately binding and the service shall have been deemed to commence.
Platinum Financial Consulting (Platinum) trading as Best Pension Annuity operate an ‘utmost good faith’ policy. This means that both Platinum and the customer are working openly and honestly with each other with the genuine aim of concluding this business to their mutual benefit.
Genuine circumstances may occur that cause the business not to complete.
On receiving instruction from the customer, Platinum Financial Consulting, will begin all work required in arranging to have the customer’s pension fund(s) paid as a lump sum under the UK’s current triviality rules. They will explain to the customer what the process involves and keep them updated with progress.
The customer agrees to full co-operate with Platinum Financial Consulting in giving them all appropriate authority required in dealing with their pension providers and providing any completing any documentation necessary to facilitate a successful completion of the transaction.
Platinum will arrange for the entire value to the pension fund to be paid directly to the customer. In certain conditions, and at the request of the customer, Platinum may agree to facilitate a different method of payment.
The transaction is deemed to be complete on the day the customer receives their final payment relating to the trivial commutation from their pension provider(s).
The customer has 14 days from the date of completion to pay Platinum the agreed fee of £250.
If the customer chooses to pay the fee at the commencement of the service they can pay a reduced fee of £200.
The customer is able to cancel this transaction at any time without penalty save for breaches of ‘utmost good faith’.
Should the transaction not complete, save for breaches of ‘utmost good faith’, then the customer does not have to pay any fee and any monies previously paid to Platinum shall be returned.
To help customers understand our ‘utmost good faith’ clause we offer below, an example of what we would consider to be a breach of this clause. This is not the only example and it should be remembered that the clause exists to protect the business from customers who would use the services of the business but then seek ways of not paying for those services.
In our example a customer appoints us to arrange their trivial pension. We liaise with their pension provider(s), calculate their triviality entitlement, deal with administration issues arising and then send the customer completed paperwork. At this stage, without any good reason, the customer attempts to terminate the contract and uses our work to progress the transaction themselves with the aim of not paying our fee. We would see this as a breach of the clause.
Platinum equally has an obligation to treat customers fairly and equally in ‘utmost good faith’. For this reason we have introduced a no fee condition to cover genuine situations where the business does not complete. |
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