RPSM09105050 - Technical pages: member benefits: lump sums: trivial commutation lump sum: example 1 - payment of a trivial commutation lump sum
If the commutation period began before 27 March 2014, please refer to the archived version of this manual in The National Archives. http://webarchive.nationalarchives.gov.uk/20140504142140/http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM09104900.htm
Catherine has uncrystallised benefits held under three registered pension schemes (scheme A, B and C) worth £12,000, £12,000 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 £29,000. This is made up of £29,000 uncrystallised rights (with no relevant crystallised pension rights).
Catherine is aged 61. 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 of £30,000 (for commutation periods starting on or after 27 March 2014).
Catherine wants to commute her benefits as soon as possible. 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 thus be the first day of the 12-month commutation period. Catherine must draw any further trivial commutation lump sums from her remaining registered pension schemes before this period ends.
Catherine’s pension rights are valued on 1 March 2014. The valuation comes to £29,000. To be a valid valuation, the first trivial commutation lump sum payment must be paid before 1 June 2014 (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 schemes A and B as trivial commutation lump sums, 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 May 2014. Her commutation period starts from that date and runs to 1 May 2015. 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 June 2014 (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 May 2015. But after this date the chance to commute those benefits as a trivial commutation lump sum is lost.