Advice on Pension Pot below £18,000

littleflower

My partner aged 55 has a pension pot with Prudential which is worth just over £12,000.

We would be grateful to receive some advice as to know what is the best option to proceed with this pot.

The annual amount payable is very minimal, is he able to take it as a total lump sum, even if tax is payable?

taking_stock

age 60 is the minimum for trivial pensions, as long as all pensions (excl state) add up to less than £18k.

bobthesod

to give you an idea, my pension eggcup! was £860 or so. made redundant shortly after startingso i didnt add anything to it. The ins co said i could claim all of it in a lump sum, but i was not aware of this 18k ceiling, so i was offered the following.
out of the 860 i could take 25% lump sum and my pension would be £9.00 per annum.

You work out the maths!!

Dal_Whinnie

I am slightly hazy on some of the rules around this but the following points may be relevant:

1. You can take 25% free of tax and take the balance as a pension but with a small fund this could be an amount which is not really viable
2. The trivial commutation rules are to allow small pension pots to be paid out as a lump sum The maximum amount is 1% of the lifetime allowance (this is currently £1.8m but reduces to £1.5m from 6 April) so is currently £18,000 but reduces to £15,000 next month. This is the maximum amount of trivial payments an individual can receive and is not related to pensions they receive. However, if previous trivial commutation amounts have been received future ones have to be paid within 12 months of the first payment. The amount has to be the full pension fund and as taking stock says, you have to be 60
3. Where a payment is made by the pension scheme or insurance company which is not covered by one of the approved methods it is deemed as an unauthorised payment and is then subject to tax at 55%

The answer will be impacted by whether your partner has any other pension funds. If they are able to wait, it might be best to wait until they reach 60 because, they may then be able to take the full amount as a trivial payment depending on value of the fund at that time and the lifetime allowance. If they don't want to wait then you may be able to persuade the insurance company to pay an unauthorised payment but the tax charge will take more than half of it

wallpaperman

Dal_Whinnie wrote: »

2. The trivial commutation rules are to allow small pension pots to be paid out as a lump sum The maximum amount is 1% of the lifetime allowance (this is currently £1.8m but reduces to £1.5m from 6 April) so is currently £18,000 but reduces to £15,000 next month.

Just to clarify, although the lifetime allowance is reducing to £1.5 million from 6 April 2012, the triviality upper limit is staying at £18,000 and not reducing to £15,000. The link to 1% of the LTA is therefore broken.

molerat

Dal_Whinnie wrote: »

...................... This is the maximum amount of trivial payments an individual can receive and is not related to pensions they receive.................

Pensions already in payment are deemed to have a value of 20x their annual payment and form part of the £18K

Dal_Whinnie

molerat wrote: »

Pensions already in payment are deemed to have a value of 20x their annual payment and form part of the £18K

I believe the 20x is not always correct but for the purposes of doing a rough calculation is a reasonable basis. More importantly, I accept that I gave misleading information for which I apologise. Looking at the legislation, as with everything to do with pensions is convoluted, the position re trivial lump sums is basically-

1 no previous trivial lump sum can have been paid or if it has it must have been less than 12 months prior
2 the value of the individuals pension rights (whether already being paid or not) must not exceed £18,000. The value will have to be obtained from the scheme provider or, as stated, apply 20x pensions being received as a guide
3 the individual must have all or part of their lifetime allowance available
4 it must pay out all of the rights under that particular scheme
5 the individual must have reached age 60

The maximum amount payable as a trivial lump sum cannot exceed £18,000. As far as I am aware this amount is not reduced by other pension rights as referred to above so provided all other rights do not exceed £18,000 then you can receive up to £18,000 in trivial lump sums during the 12 month period.

I have come across situations where a lump sum can be paid when a scheme is being wound up but I don't know whether this could apply here and making any such payment without it being treated as an unauthorised payment is fraught with difficulty but you could speak to Prudential on this.

Returning to original question, it does look as if the only possibility is to take an unauthorised payment and accept the tax on it but again, speak to Prudential in more detail.

wallpaperman

Dal_Whinnie wrote: »

Returning to original question, it does look as if the only possibility is to take an unauthorised payment and accept the tax on it but again, speak to Prudential in more detail.

I would be really surprised if Prudential would knowingly settle a trival case that is over the limit, I know the pension provider that I work for wouldn't entertain it. It will mean additional work and expense for the company to report the unauthorised payment. There could be a tax sanction against the scheme as well as the member formaking an unauthorised payment.

RichandJ

Dal_Whinnie wrote: »

I have come across situations where a lump sum can be paid when a scheme is being wound up but I don't know whether this could apply here and making any such payment without it being treated as an unauthorised payment is fraught with difficulty but you could speak to Prudential on this.

Wind up lump sums are different to triviality lump sums and do not depend on age and 'all pensions' value.

Dal_Whinnie

wallpaperman wrote: »

I would be really surprised if Prudential would knowingly settle a trival case that is over the limit, I know the pension provider that I work for wouldn't entertain it. It will mean additional work and expense for the company to report the unauthorised payment. There could be a tax sanction against the scheme as well as the member formaking an unauthorised payment.

I agree, insurance companies really do not want to make unauthorised payments but where they do then they would look to charge the policyholder all of the tax levied which I believe is currently a maximum of 55%.

It does raise the question though of what to do with relatively small pots when your total pension rights exceed £18,00 since you often can't get a quote for an annuity and you can't draw the money out.

johnbanks1948

My partner is 60 in august and has had a pension forecast showing a pot of £18150. This is above the trivial amount just. Is there anyway i can get this reduced to under £18K so she can claim trivial pension. The annuity they are offering is so small it is not worth having and she will have to live well into her 80's to get her money back