PSI8.3.10 - Commutation for Triviality or
Serious Ill Health: Old Code Funds
-
(This archived guidance relates to HMRC discretionary
practice before the 6th April 2006. For current guidance on
Registered Pension Schemes see the Registered Pension Schemes
Manual)
[M119]
Tax approval conditions applying before Finance Act 1970
allowed pensions to be wholly commuted to a lump sum only if the
total amount (including the pension equivalent of any part of the
benefits taken as a lump sum on retirement) did not exceed £39
a year. Section 608 ICTA 1988 allows continuing exemption from tax
on the investment income, commissions, profits and gains of a
pension fund approved under legislation in force before Finance Act
1970 (section 208 ICTA 1970 - see Introduction 4.1-5) and which has
not applied for approval under current legislation. This exemption
is, however, subject to certain conditions. They are that
- no contributions have been paid to the fund
since 5 April 1980; and
- no alterations have been made since 5 April
1980 to the terms on which benefits are payable.
A fund altering or introducing provisions allowing for
triviality commutation would therefore lose its continuing
exemption by virtue of (ii) above. On 19 January 1994, the Inland
Revenue published an Extra Statutory Concession which permits these
old funds to alter their rules to take advantage of the current
triviality limit of £260 enjoyed by more modern schemes,
without losing their continuing exemption from tax.
Strictly speaking, benefits from all schemes in respect of
the same employment should be aggregated in determining whether a
pension may be commuted for triviality. However, as a purely
administrative easement, you can permit a section 608 fund to
either aggregate actual benefits from all schemes or to adopt a
rule of thumb approach so that when a section 608 fund pension does
not exceed ¾ x £260 = £195 the triviality limit will
be regarded as satisfied.
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