Clarification of 'Trivial Pension' rules

pewe

I am aware that under certain circumstances the HMRC allow a pension fund to be 'cashed' in it's entirety if it is small enough to be regarded as 'trivial..

But I am not clear on the full details of the rules.

As I understand it, as long as the 'total available fund' is less than £18,000, then the whole fund can be taken as cash - 25% being tax free, the balance being regarded as 'income' and subject to income tax.

What I am not clear about is what constitutes the 'total available fund'.

Is it the total of all available pension funds, or the total of all funds being commuted in the same tax year, or something else.

Take as an example:

Man aged 62 has 3 separate funds - A with a fund value of £7,000, B with a fund value of £15,000 and C with a fund value of £35,000. Normal retirement age for all three funds is 65.

Would he be able to take fund A (£7,000) at age 63, leaving B & C until age 65, and have fund A treated as 'trivial'.
Or would the total value of all three funds prevent this albeit that funds B & C will not be looked at until later years.

Can anyone clarify?

RichandJ

The £18,000 limit applies to ALL non-state pensions. They ALL have to be taken within one year of a 'nominated date' after age 60. You can't pick and choose which pensions and which dates you want to take them under triviality rules as in your example.

pewe

Thanks Richard.
That sounds pretty straight foward.

CFC

I thought it was 55? Is it (or will it soon be) 60?

RichandJ

CFC wrote: »

I thought it was 55? Is it (or will it soon be) 60?

55 is the earliest you can access pension benefits, 60 (with certain arcane exceptions*) is the earliest age for trivial commutation.

* spouse's pensions under £900 pa or a winding up lump sum under £18k for eg.

pewe

They ALL have to be taken within one year of a 'nominated date' after age 60

Sorry, can I just clarify this.

Ignoring the 'triviality' issue, do all non-state pensions have to be taken in the same year.

I transferred a company pension into a 'Section 32' fund some years ago and I have some notes from an IFA at the time. The notes indicate that with non-state pensions they could all be taken at different times after 55 to suit circumstances. They didn't have to all be commuted at the same time.

So either he was incorrect, or I misunderstood him, or things have changed since I made the notes. Unfortunately he is no longer available to ask.

RichandJ

Only if you want to commute ALL your benefits on the grounds of triviality do they all have to be taken in one year.

If you are taking benefits 'normally', i.e. 25% tax free cash + a pension, from different sources you can take them whenever you like, subject of course to policy terms/scheme rules & legislation.

I think some confusion may arise here because we in the pensions industry use the word commutation for both commuting (giving up) part of a pension for some tax free cash and also for trivial commutation which means giving up the whole pension, including any spouse's benefits or guarantees, for a one off lump sum, some of which is taxed.

pewe

Thanks Richard.

That clears it up.