RPSM09300130 – Scheme Administrator Pages: Member benefits: Lump sum payments

Trivial commutation lump sum

The legislation provides for trivial benefits to be commuted and paid as a one-off lump sum payment once the member has reached the age of 60 but has not reached age 75. This can be done only if the value of the member’s benefit entitlement under all registered pension schemes, along with all rights that have previously crystallised for lifetime allowance purposes (including any pensions in payment on 5 April 2006), do not exceed a maximum value (the commutation limit) as valued on a specific date (the nominated date). RPSM09104920 explains what pension rights are measured here.

Where the value of these combined pension rights does not exceed the commutation limit on the nominated date those rights may be paid out as a trivial commutation lump sum in a specified 12-month commutation period. This period is set by reference to the first trivial commutation lump sum payment (post 5 April 2006). That first payment must be within three months of the valuation if that nominated date valuation is to apply. RPSM09104950 explains this in more detail.

An individual can only have one 12-month commutation period in their lifetime. So the member needs to use this period to commute any trivial benefits they hold in multiple registered pension schemes, as once a commutation period has been set and then ended no further trivial commutation lump sum payment can be made. Trivial commutations that occurred before 6 April 2006 do not count for this purpose. Commutation cannot occur once the member has reached their 75th birthday.

All the benefits held under a registered pension scheme (including any in payment) must be commuted this way if a trivial commutation lump sum is to be paid. However, if the individual holds benefits under more than one scheme they are not required to commute their benefits under every scheme. They can commute benefits held under one scheme, but not those under another.

The commutation limit is 1% of the standard lifetime allowance at the time of the nominated date.