Help - Trivial Pension, Cashing In

dunstonh

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

We have had 2 years of large growth and there is no recent downturn.

Are there any more to add?

We dont actually know what type of pension it is. Is it a personal pension or an occupational pension?

dougz_2

Instead of giving money away in fees for nothing, why not just put it into extremely volatile investments instead? Until it either drops to £18k so you can cash it all in, or it grows to £72k so you can take £18k as a 25% lump sum.

La_Coccinelle

Thanks to everyone for their help and advice.

Yes, I procrastinated, but the amount shot up from £17,090.06 in Oct 2010 to £18, 495.49 in March 2011. More than 8%. I find this almost impossible to believe.

Reading the site "Low Incomes Tax Reform Group", it says under the heading " Cashing in your small pension - (trivial commutation)".

For pensions already in payment

• For the purposes of testing against the £18,000 limit, these are valued at 20 times the annual pension income, so a pension of £750 a year, for example, would be given a capital value of £15,000. Any tax-free lump sums that may have been received at the time the pension commenced are added to this capital value .
• It is important to remember that this valuation is for testing against the limit only and the actual amount the scheme will pay out may well be different.
• Different valuation factors apply if you started receiving your pension before 6 April 2006 - in these circumstances you may need to seek specific advice.

So, do I look at the amount of £18495.49 or 20 times the annual amount payable which is £686.52 ??

Also, there is :
Additional payments allowed within the same tax rules

In addition to the £18,000 limit for trivial commutation lump sum payments, further cash payments in exchange for a pension are allowed. For example:

• up to £2,000 from certain occupational and public service pension schemes, or where payments are made to rectify an error;

Should I speak to the pension provider or get the help of an independent financial advisor?

Thanks.

RichandJ

It depends.

Is it a final salary scheme where the £686 is the pension payable ? If so, then it is within the triviality limit (pension of up to £900 pa).

If it's a money purchase arrangement and the £686 is simply a quote of possible income then the fund value is over the limit.

La_Coccinelle

I have just received a statement dated 23/03/11, which states the amount is £18078.30, I am very confused. The £686 is a annuity quote.

jh2009

La_Coccinelle wrote: »

I have just received a statement dated 23/03/11, which states the amount is £18078.30, I am very confused. The £686 is a annuity quote.

You have a money purchase fund, so the 20 times factor isn't relevant for you. For lifetime allowance purposes, you have to use the fund value for this (£18078). This is more than £18000 so could not be taken as a trivial commutation.

If your pension was a final salary, and the pension payable from that was £686 then you could use the 20 times. The reason a 20 factor is used for this type of pension is that 20 times is used as a general factor to estimate the money purchase pot that would've been there to provide the final salary pension. In reality and in money purchase schemes annuity factors will be higher or lower than £1 per £20 depending how old you are at retirement.

Also you must to be between 60-75 to take a trivial commutation.

La_Coccinelle

I have spoken to the company today and the amount has gone up to £18467.96 since the previous statement on 23/03/11. Is this sort of fluctuation normal?

dunstonh

La_Coccinelle wrote: »

I have spoken to the company today and the amount has gone up to £18467.96 since the previous statement on 23/03/11. Is this sort of fluctuation normal?

We are coming off two very good years for investment performance in virtually all sectors. That is only a 2% increase so not what you would class as major fluctuation. You havent mentioned the investments so we cant say if its normal or not.

Also, as we now know its a money purchase scheme, the triviality value is recorded at the point it is taken. It cannot be backdated.

So, unless the value goes down, triviality is not going to be an option. You could wait until the next downturn. Problem is that it could go up another 100% before we see another 25% drop (or up 25% before a 10% drop or any range of figures). Or you could wait 2 weeks for it to happen or 7 years or never (if the value goes up a lot).