PSI24.1.5 - Pension Credit Benefits – Form of Benefits – restrictions

(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)

[PN6A.20]

Pension credit rights can be fully commuted for a lump sum if

• the ex-spouse member is in exceptional circumstances of serious ill health (see PSI8.3.21), or
• the pension payable from the pension credit rights to the ex-spouse member or the widow, widower or dependants of the ex-spouse member is trivial in amount – the total amount of pension (including the pension equivalent of any lump sum benefit payable) does not exceed £260 per annum.

Where pension credit rights for

• an ex-spouse member, or
• the widower, widower or dependants of a deceased ex-spouse member

are provided from a scheme under which the ex-spouse member or the widow, widower or dependants of the ex-spouse member is/are also entitled to benefits as an employee (or the widow, widower or dependants of the employee), the benefits from the pension credit rights must be aggregated with the benefits from the employment held under all schemes of the employer. If the total amount exceeds the triviality limit the pension credit rights cannot be fully commuted on triviality grounds.

The requirement that a lump sum paid to an ex-spouse member must be conditional on the

• employee member from which the pension credit derived having the same lump sum option, and
• the employee member not having received a lump sum from the scheme before the pension sharing took place (see PSI24.1.4)

does not apply in the case of either trivial or serious ill health commutations.

Pensions for the widow, widower or dependants of an ex-spouse member can only be fully commuted on triviality grounds.

Full commutations on either trivial or serious ill health grounds may give rise to a tax charge under section 599 ICTA 1988 (see PSI17.2.61). A tax charge under section 599 does not apply in the case of a trivial commutation of a widow’s, widower’s or dependant’s pension.

Social Security legislation contained in the Welfare Reform and Pensions Act 1999 and related regulations may put further conditions on when pension credit rights can be fully commuted (see PSI24.1.10).