Help- what is this trivial commutation???

angiek

Last year I was sent a letter by a previous employer asking me to decide how I wanted to take a small pension ( £23,599 cash or £1494 per annum) which became payable on my 60th birthday in December. As I had totally forgotten I even had it (paid into for 5 years only, 35 years ago, then left that job) I decided to take the cash and use it for my son to put a deposit on his first house. I read the info on government website and also MSE pension guide. Filled in required forms and waited. Received a letter last week telling me that as I also have another (even smaller) pension as a share of a divorce settlement (£800 per annum) this puts me over the limit for 'trivial commutation' so I cannot take a cash sum! I understood that from April 2015 anyone over the age of 55 could take their pension as they choose...and the illustrations of how people could take their pensions used sums way bigger than my very TRIVIAL £2300 per annum. Very confused. Can someone please explain, in simple terms, why I am unable to take this pension as a cash sum? Many thanks, Angie

dunstonh

Trivial commutation doesnt really exist in respect of money purchase plans any more. Its really only an issue on defined benefit schemes.

It is unlikely that a pension of £2300 p.a. could be considered trivial.

jamesd

What you can do depends on the specific type of pension. The freedoms that started back in 2006 and have been reannounced last year that allow much freedom apply to money purchase and personal pensions that do not have a guaranteed annuity rate or have a guaranteed annuity rate and have low value.

To comment more specifically we'd need to know more details of the type of each pension. Defined benefit (like final salary or average salary)? Defined contribution or personal (usually with investments that you could change if you wanted to)? If defined contribution, if there is a guaranteed annuity rate? If defined contribution is there any guaranteed minimum pension, most likely if it was created due to you contracting out of part of the state pension?

It is likely that a pension from 35 years ago is a final salary type.

Are the pensions inflation-protected in some way? If they are it seems that you will get quite a good deal from the income.

Trivial commutation still exists for defined benefit pensions and it seems that the values you have given would cause the income level to put you above the limit for trivial commutation, which applies across all pensions combined.

If you cannot take all of the money as a cash sum you may be able to take 25% or perhaps more as a tax free pension commencement lump sum. This would probably not apply if there is a concern that the value of the pension may not be enough to cover the legal obligation to pay income to you at guaranteed minimum pension levels.

xylophone

http://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/the-right-choice-for-me/taking-a-small-pension-as-a-cash-lump-sum

Presumably the value of the two pensions when added together exceeds £30,000 which is why the Trivial Commutation is not an option?

However, I wonder would a pension transfer be a possibility?

http://www.thepensionsregulator.gov.uk/docs/db-dc-transfers-conversions-regulatory-guidance.pdf

woolly_wombat

angiek wrote: »

Last year I was sent a letter by a previous employer asking me to decide how I wanted to take a small pension ( £23,599 cash or £1494 per annum) which became payable on my 60th birthday in December.

It sounds as if this pension consists primarily of Guaranteed Minimum Pension (GMP).

£23,599 does not sound like much for giving up £1494 p.a. You would need more than £30,000 to purchase a flat rate annuity of £1494 p.a. now.

I can understand your desire to help your son, but won't you need that £2294 (£1494 +£800) p.a. to support yourself in retirement? That, after all, is what pensions are for.

dunstonh wrote: »

Trivial commutation doesnt really exist in respect of money purchase plans any more. Its really only an issue on defined benefit schemes.

It is unlikely that a pension of £2300 p.a. could be considered trivial.

Could that be preventing you from making an expensive mistake?
........................................................................................

xylophone

I can understand your desire to help your son, but won't you need that £2294 (£1494 +£800) p.a. to support yourself in retirement? That, after all, is what pensions are for.

The OP mentions that he left that employer more than thirty five years ago - it is conceivable that he has since been a member of a pension scheme whose benefits at retirement ( especially when combined with a full state pension), will more than amply provide?

mgdavid

xylophone wrote: »

The OP mentions that he left that employer more than thirty five years ago - it is conceivable that he has since been a member of a pension scheme whose benefits at retirement ( especially when combined with a full state pension), will more than amply provide?

I think Angie is a 'she' :eek:

woolly_wombat

xylophone wrote: »

The OP mentions that he left that employer more than thirty five years ago - it is conceivable that he has since been a member of a pension scheme whose benefits at retirement ( especially when combined with a full state pension), will more than amply provide?

I did a bit of checking before I posted and made a few what I hope were intelligent guesses.

Of course I'll be very happy if angiek proves me wrong.

The OP mentioned in another post nearly 8 years ago that she had "no pension".

The pension from 35 years ago payable at 60 seemed to indicate a GMP for a female as well.

saver861

mgdavid wrote: »

I think Angie is a 'she' :eek:

Possibly ..... though further clarification would be useful before one makes a definitive conclusion .....

xylophone

I think Angie is a 'she'

Angelo K?:D

There was a poster on another forum ("Mario Lanza") who, it eventually transpired, was a female....

The pension from 35 years ago payable at 60 seemed to indicate a GMP for a female as well.

In many DB Schemes NRA was 60 for both sexes although GMP age remained and remains 60(F) and 65(M).

The OP mentioned in another post nearly 8 years ago that she had "no pension"

.

I had a look and found this

Early yesterday after reading as much as I could about the Icelandic banks troubles I made an informed decision and decided not to panic, but to leave my money in Icesave.
I went to bed and couldn't sleep- this is ALL my money, (though well under the £35,000) no partner, no pension etc. etc. so got up again and did a CHAPS transfer.

but it is not wholly clear from the context as to whether this is then or for the future. At anther point a low income is mentioned but then too is a trip to Peru.... and the income might not always have been low....

At all events, the original query was about trivial commutation which would not appear to be possible - it may be that a transfer might be but the OP would have to consider all options.

One assumes that the OP would not be looking to make a gift to a child unless in some way or another there was felt to be adequate provision for the future? It would seem that since the pensions had been forgotten, no dependence had been placed on them for this purpose?


It would also be a good idea for the OP to check the NSP situation.

angiek

Woah Xylophone, you really did do some digging in order to answer my questions!!!!
Wake up call into how I have put parts of my life out there in the public domain - and not entirely happy about that. So from now on, the less said the better, lesson learnt.
Thanks to all who tried to help, I still don't understand it....but will just leave it, what will be will be.