RPSM09105040 - Technical Pages: Member benefits: Lump sums: Trivial commutation lump sum: Process the scheme administrator must go through

If the lump sum was paid on or after 6 April 2011 you should first read RPSM09105085.

Process the scheme administrator must go through before paying out a trivial commutation lump sum

A registered pension scheme must take reasonable steps to ensure that any payment they make is authorised, within the meaning of Chapter 5, FA 2004.

If they fail to take such steps, and it transpires that a payment made is an unauthorised member payment, the scheme will become liable to pay a scheme sanction charge (unless the payment falls within narrowly defined circumstances).

Where the authorisation of a payment is conditional on matters which are known only by the member, schemes will need to ask the member to supply sufficient information so that the scheme can confirm that those conditions are satisfied.

It is reasonable for schemes to then act on the basis of the information the member provides.

The scheme making a trivial commutation lump sum payment will need to obtain sufficient information from the member to confirm that the conditions as laid down in the legislation are all met - specifically that all that member’s pension rights are within the commutation limit on that nominated date.

If the member has pension benefits with other schemes, the commuting scheme will have to ask the member about the value of those benefits, so that it can confirm that the total value of the member’s pension rights falls within the commutation limit.

Where a member gives a scheme inaccurate information or makes a false statement, so that a payment which a scheme considered to be authorised turns out not to be, the scheme can seek discharge from any resulting scheme sanction charge through the ‘good faith’ provisions in the legislation - see RPSM04104870.

In order to show that a scheme had reasonable grounds for believing that an unauthorised payment was authorised schemes should retain documentary evidence of any member statement or information they have relied on.

Where schemes discover that a payment that they had believed to be authorised is not in fact so, they should report the unauthorised payment on the Event Report - see RPSM12301030.