Taking a small pension pot as a lump sum

Texas_Pete

Hi
I'm trying to help my mum with her pension arrangements. She recently applied to take her pension scheme from her last job prior to retirement (part time job) with the max lump sum (around £2000) and a £320 a year pension.

She completed the other forms telling them she had a pension from RBS (worth around 50K) and a private pension with Aviva (current value about 18.5K).
Instead of making the £2000 payment as a lump sum they paid out the full value of the pension savings (as a triviality payment?).

I was under the impression all the pension schemes she was in would have to have a combined value of less than £18,000 for them to do this but they are saying this is correct as she hadn't started drawing any of these pensions when she applied to start the above pension?

Is this correct as she has queried it with them?

dunstonh

Triviality is £18,000 but there is also stranded pots which are upto £2000. It applies to all pensions not just one. So, they are wrong.

She should contact them back and say they have made a mistake. If it is not too late, your mum should also get an IFA to look at the open market option as it would almost certainly be better for her to combine money purchase pots and get better terms (although the scheme pension may have certain terms where that is not the case - I am assuming from your wording that she used to work for RBS)

xylophone

http://www.aviva.co.uk/adviser/product-literature/files/sp/sp99309c.pdf

Texas_Pete

Thanks for the replies.

I was convinced of the 18K limit is all pots and nothing to do when she started taking the pensions. I told her to call back but both times she's been fobbed off saying they always make payments of this amount in full (She was there longer than 2 years).

The other issue here is they have already made the payment from which tax has been taken off?

I assume she can still take the pension as the pension fund are at fault here?

dunstonh

Whilst the insurer has made the mistake, HMRC apply the penalty to her. She needs to push through to someone else or if that fails, make a complaint. The tax will be resolved with any correction.

Texas_Pete

I got her to speak to them again and they are saying that because she never mentioned her other pensions on the form (I find this surprising) they have compounded the pension into a single payment on £5740 that has been taxed.

She definitely requested the pension and lump sum as the letter states what will be paid only to later state it has been compounded to a lump sum.

I think the first course of action here is to go back to the pension fund and ask to see the paperwork but what would be HMRCs view given she should not have received this payment?

This now has a further knock on effect of changing the tax (from 0 - 20%) she will be due on a lump sum payment from her state pension.

xylophone

She completed the other forms telling them she had a pension from RBS (worth around 50K) and a private pension with Aviva (current value about 18.5K

)

I got her to speak to them again and they are saying that because she never mentioned her other pensions on the form

Which is it?

Texas_Pete

I thought it was (as that's what she told me)

She completed the other forms telling them she had a pension from RBS (worth around 50K) and a private pension with Aviva (current value about 18.5K)

but having spoke to them they are saying that they made the compounded payment as it was under 1% of her LTA and she wasn't at that time in receipt of any other pensions?
They say she stated on the form she was currently not in receipt of any other pensions, which is true.

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM09104910.htm

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.

Doesn't this imply they need to take into account all pensions and not just those that were getting paid at the time?

I understand this may come down to what was actually put on the form as how are they to know what arrangements are in place.

dunstonh

It is all pensions the person has whether crystallised or not. The calculation to obtain their lifetime allowance is what can differ on those crystallised and not crystallised.

They would go by the forms completed as the lifetime allowance declaration and triviality declaration is not one they have to check. It is effectively a self declaration and if errors are made, it is blamed on the individual.

Texas_Pete

They would go by the forms completed as the lifetime allowance declaration and triviality declaration is not one they have to check. It is effectively a self declaration and if errors are made, it is blamed on the individual.

Thanks for that. I thought it would be probably come down to what has been put on the forms?

Is it normal just to convert the pension to a triviality payment if its less than 18K and there are no other pensions provisions?

It sounds like the advice given from the provider about 1% and only taking into account those pensions currently in receipt, is wrong then?

dunstonh

Is it normal just to convert the pension to a triviality payment if its less than 18K and there are no other pensions provisions?

Yes. For most people there would be no reason not to.

It sounds like the advice given from the provider about 1% and only taking into account those pensions currently in receipt, is wrong then?

It is. So, it is still worth following through with a complaint.