RPSM09105050 - Technical Pages: Member benefits: Lump sums: Trivial commutation lump sum: Example 1 - payment of a trivial commutation lump sum
If the lump sum was paid on or after 6 April 2011 you should first read RPSM09105085.
Payment of a trivial commutation lump sum: Example 1
Catherine has uncrystallised benefits held under three registered pension schemes (scheme A, B and C) worth £2,000, £2,000 and £5,000 respectively. Her benefits under each scheme are held in three different arrangements, i.e. A1, A2, A3 etc. Catherine has no other benefits and is not in receipt of any pension in payment. She also has 100% of her lifetime allowance available.
Catherine’s pension rights are therefore valued at £9,000. This is made up of £9,000 uncrystallised rights (with no relevant crystallised pension rights).
Catherine is aged 61 in the 2010/11 tax year. The rules of all three pension schemes allow the commutation of trivial pensions. Catherine has the option of commuting her benefits, as her total pension rights are less than the commutation limit for that tax year (1% of £1.8 million, which is £18,000).
Catherine wants to commute her benefits as soon as possible in the 2011 calendar year. The nominated date her pension benefits must be valued on must fall within a 3 month period ending on the date the first trivial commutation lump sum is paid. The date this first payment is made will be the first day of the 12-month commutation period. Catherine must draw any further trivial commutation lump from her remaining registered pension schemes before this period ends.
Catherine’s pension rights are valued on 1 January 2011. The valuation comes to £9,000. To be a valid valuation, the first trivial commutation lump sum payment must be paid before 1 April 2011 (within 3 months of the valuation).
Catherine does not have to take her benefits as a trivial commutation lump sum from each scheme. She may choose to take her benefits under one or two of the schemes and not the other(s). But it must be an all or nothing decision in relation to each scheme, i.e. all the arrangements in a scheme must be paid as a trivial commutation lump sum, or none of them.
Catherine decides to draw all her benefits under scheme A and B as a trivial commutation lump sum, i.e. all her rights under arrangements A1, A2 and A3 and B1, B2 and B3.
The benefits under scheme A are paid out as a trivial commutation lump sum on 2 February 2011. Her commutation period starts from that date and runs to 1 February 2012. Any payment from scheme B must therefore be paid by that later date, and that payment must represent all her rights under arrangements B1, B2 and B3.
The benefits under scheme B are paid on 5 March 2011 (within the commutation period).
Catherine decides to leave the benefits held under scheme C. She can change her mind and decide to fully commute these benefits up until 1 February 2012. But after this date the chance to commute those benefits is lost.