Help - Trivial Pension, Cashing In

tekton23

Hi,

I am trying to find help on behalf of my Mum who wishes to cash in her pension. She is very upset as she thinks it has just gone above the amount for it to be a trivial sum and that she now will not be able to cash it in. Does anyone have any advice or know where we can get help?

Has anyone been able to succesfully cah theirs in once it has gone over the trivial sum amount?

all the best,

T23

Loughton_Monkey

Firstly, you need to double check the rules. She must be absolutely clear that this (or these) is (are) the only pension fund available to her.

After that, the technical answer is that if it is £18,001 or more, then sorry, she cannot take it as a lump sum.

It has been mooted, however, that if such a pension has a value of, say, £18,600, it is not beyond the realms of possibility to transfer it into an HL (or other) SIPP into (perhaps) some low level fixed interest fund (safe, but virtually zero growth) and let charges eat away at the £600. Wait for it to be worth only £17,999 and then do the deed.

Clearly, though, the more above £18K it is, such a strategy becomes rather more costly, and rather more difficult to achieve.

wakeupalarm

Hasn't the limit changed to £15,000?

dunstonh

wakeupalarm wrote: »

Hasn't the limit changed to £15,000?

No. It is no longer 1% of the lifetime allowance but £18,000. I believe that once the lifetime allowance goes back up to £1.8 million, the 1% link kicks back in again automatically.

RichandJ

dunstonh wrote: »

No. It is no longer 1% of the lifetime allowance but £18,000. I believe that once the lifetime allowance goes back up to £1.8 million, the 1% link kicks back in again automatically.

And the LTA doesn't go down to £1.5m until 6/4/12.

scottiepaul

She could ask for it to be paid as an unauthorised member payment. The tax charges on both her and the Scheme will eat up the excess over £18,000 but many Schemes don't like paying them as it's an administrative headache.

EDIT - as mentioned above, a trivial commutation lump sum can only be paid if it exhausts all the entitlement under that Scheme. I'm assuming she hasn't taken a trivial commutation lump sum from any other arrangement (if she has then she could only take one from this scheme within 12months) so that part of the rules won't apply.

RichandJ

scottiepaul wrote: »

She could ask for it to be paid as an unauthorised member payment. The tax charges on both her and the Scheme will eat up the excess over £18,000 but many Schemes don't like paying them as it's an administrative headache.

EDIT - as mentioned above, a trivial commutation lump sum can only be paid if it exhausts all the entitlement under that Scheme. I'm assuming she hasn't taken a trivial commutation lump sum from any other arrangement (if she has then she could only take one from this scheme within 12months) so that part of the rules won't apply.

Most schemes will NOT make known unauthorised member payments IME.

Also, to re-iterate, if any previous triv comm funds have been taken the value of ALL non-state pensions must be taken into account in determining whether ANY may be taken under triviality rules.

jh2009

Usually the only situation where a pension scheme will make an unauthorised payment would be where a member has breached their Lifetime Allowance. Or where it makes an unauthorised payment "in good faith". (i.e. it pays a benefit when the member has not told them they have used up all their LTA).

A scheme is very unlikely to provide an unauthorised trivial commutation.

If the scheme is a final salary scheme, then in addition to the £18,000 rule the scheme could trivially commute the benefit without having to take account of any other benefits held in other schemes if the total trivial commutation in that scheme is less than £2000. This was introduced in December 2009, although final salary schemes do not have to provide this option. This is not available to money purchase pensions.

mad_bad_spender

I know that at least one pension provider allows you to choose a date in the previous three months in which the amount was under the 1%.. so if it has just gone over the limit recently she may want to look into this.

tekton23

Hi,

She is going to ask the pension company for advice, perhaps the sum may have gone down recently due to the downturn etc.

It sounds like the two options are:

1. checking if the company will allow commutation if it is just over the allowance.

2. Moving the fund to generate fees that send it under the 18k limit.

Are there any more to add?

Thanks for your replies and for taking the time to help.

T23

dtsazza

Asking the pension company is a good idea. At the end of the day, if you're happy to put the money in certain funds in order to reduce its value through fees, the pension company itself might be happy to charge you a one-off fee for something too? It's a win-win situation if it's legally sound. If not, perhaps they could voluntarily increase the charges on your existing funds to something silly like 20% in order to eat away at the capital.

P.S. It feels very strange to think of the most efficient ways to lose money in a pension.