Pension: Trivial Commutation

If you have a £200,000 pension fund at age 65 you might expect a pension income of around £12,000 per annum before tax. If you have a pension fund of £2,000 you might hope for a pension income of £120 per annum (or £10 a month) less tax. But it probably costs the pension income provider the £10 a month just to make payment!

There are two ways of getting around this problem:

Individual Trivial Commutation

If an individual's total pension fund from all schemes is under 1% of the lifetime allowance - currently £1.8 million - then they may all be paid as a lump sum - less tax.

Scheme Trivial Commutation

New regulations now allow schemes to avoid having to pay small pensions, and regardless of benefits under other schemes, they allow schemes to pay benefits worth less than £2,000 as a lump sum, less tax, from 1 December 2009.