Trivial Commutation over £30k?

Whiterose23

Hi, I'm looking for some advice as I've received a letter from a small deferred DB pension I have from a part-time job I had with Kingfisher over ten years ago. The letter offers me the option of taking a cash lump sum. This amount is over £30k however, which has confused me as I thought that a Trivial Commutation applied to sums under that amount?
The amount on offer is £33,470 with an AVC of £7900.
How can this be possible? I thought anything over £30k had to be transferred to a DC scheme and only with permission of an FA?
The letter states that I can take 25% tax free whilst the rest would be subject to tax depending on my yearly earnings.
Would appreciate any advice.

Albermarle

Do you mean £33470 + £7900 ? So £41, 370 ?
Or £33470 including the £7900 ?

Whiterose23

Hi Albermarle,
It states  'One-off lump sum of £33,470 +  Value of MP/AVC Arrangement: £7,900.

When I check my statements online it always provides them as two separate values, so I guess the total is 41,370.

Whiterose23

The letter also describes this as a 'Trivial Commutation'.

xylophone

The letter also describes this as a 'Trivial Commutation'.

Something doesn't seem right?




Type into Google

Spotlight on taking small pension pots as a lump sum detailed guide

 

1.Core eligibility rules 

You have to be at least aged 60 or aged 55 if benefits are taken after 6 April 2015. 

You have to add all the benefit values of all company pensions/personal pensions/stakeholder pensions/retirement annuities/buy-out plans (but not any state pension) together. If they do not exceed £30,000 (before 27 March 2014 the limit was £18,000), trivial commutation may be a possibility. 

All benefits in the pension arrangement must be extinguished. 

It will not be possible unless the pension scheme’s rules allow trivial commutation. 

2a. Special rule for Occupational Schemes only 

If you have small benefits in an occupational pension, it may be possible for you to cash them in 

under triviality rules, even if the main rules above have not been met. 

The following are the main qualifying criteria (provided the scheme was set up before 1 July 2008. There may be some other conditions if it was set up later): 

You must be at least aged 60 or 55 if benefits are taken after 6 April 2015; 

You must not be a controlling director of the sponsoring employer; 

The payment must not exceed £10,000 (before 27 March 2014, the limit was £2,000); 

The payment extinguishes your right to benefits under the scheme; and 

There must not have been a transfer-out of the scheme in the 3 years preceding the date of 

payment; and 

The first 25% of the payment is tax-free (unless the pension is in payment, when the whole 

amount is liable to income tax), with the remaining 75% taxable under PAYE; and 

The rules of the scheme allow for such a payment. 

See also https://adviser.royallondon.com/technical-central/frequently-asked-questions/triviality-and-small-pots/

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/small-pots-defined-benefit-trivial-commutations/

Have you reached Normal Scheme Pension Age?

https://www.pensionsage.com/pa/Kingfishers-UK-DB-surplus-grows-to-413m.php

https://www.kingfisherpensions.com/knowledge-centre/final-salary/

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Whiterose23

Hi,

I've just turned 55, which I guess is why I've received this letter. I am working full time and have just this year reached maximum contributions for full govt pension.

Although the letter states the rules you've laid out above re under £30,000, further down the letter it gives the amounts (as above)  and follows with:

"if you want  to explore the possibility of taking a one-off taxable cash lump sum including your MP/AVC arrangements, then you will need to fill out the forms enclosed and return them to Hymans Robertson LLP."

It also states the offer is valid until July and will be paid in September with the AVC in October.

Could it be they have sent it to me in error? 

Whiterose23

Or maybe if I filled it out they would respond with 'sorry, you are over the £30,000 limit'. Which renders the letter pointless in the first place.

Marcon

Whiterose23 said:

Hi,

I've just turned 55, which I guess is why I've received this letter. I am working full time and have just this year reached maximum contributions for full govt pension.

Although the letter states the rules you've laid out above re under £30,000, further down the letter it gives the amounts (as above)  and follows with:

"if you want  to explore the possibility of taking a one-off taxable cash lump sum including your MP/AVC arrangements, then you will need to fill out the forms enclosed and return them to Hymans Robertson LLP."

It also states the offer is valid until July and will be paid in September with the AVC in October.

Could it be they have sent it to me in error? 

Looks like a standard wording which possibly goes out to everyone, regardless of whether or not they are eligible to commute on grounds of triviality. Given that you can only do so if all your pension benefits (excluding any state pension) total no more than £30K, very few people will ultimately be eligible to do so - but it avoids accusations from anyone who might be able to trivially commute that they weren't told about the option.

Tommyjw

£30,000 is the test based on HMRC calculations, so they would have calculated the value of your benefits within the Scheme in accordance to those values and it has come to be under £30k.

The simple one is annual pension x 20 . If under 30k, you are eligible (for now). Avc value for this purpose is just the avc value itself.

So 30k, minus AVC value is £22,100. Divide by 20 = maximum pension of £1,105 per year, so I would expect to see your pension on offer is below that.

Now, the actual payment made from the Scheme if you are under 30k, can and likely always is different, that is a seperate calculation, it is now the pension x 20 necessarily, the Trustee/actuary of the Scheme would agree how to calculate it. Maybe they will use a factor depending on your age, and for your that is 25, so the value you will be paid is the pension x 25 for example.

That said, if you have any pension somewhere else, it sounds like it will push you over the 30k limit across all schemes and so won't be an option.

jamesd

Whiterose23 said:

The amount on offer is £33,470 with an AVC of £7900.
How can this be possible? I thought anything over £30k had to be transferred to a DC scheme and only with permission of an FA?
The letter states that I can take 25% tax free whilst the rest would be subject to tax depending on my yearly earnings.

Find out: 

1. The current value of the DB benefit in income form

2. The current CETV. They might be offering more or less

3. Whether the AVC can be used to pay the 25% tax free lump sum on the combined value of DB and AVC, effectively getting all of the AVC out tax free.

It does seem possible if you have no other pensions, maybe. 75% of £33,470 is less than £30,000 and the transfer rules do allow you to take a tax free lump sum without advice. So they might:

A. pay you a tax free lump sum of 25%
B. transfer to DC with no advice needed because it's less than the 30k DC threshold

If you were to do this you'd normally trigger the MPAA restriction on future pension contributions but they could structure if as three occupational small pots, perhaps, and pay that way.

The AVC is independent for this purpose.

There is a legal requirement to get financial advice before a DB transfer if the value is over £30k but the advice can be don't and you can still proceed. Get not follow is the requirement.

Whiterose23

Find out: 

1. The current value of the DB benefit in income form

2. The current CETV. They might be offering more or less

3. Whether the AVC can be used to pay the 25% tax free lump sum on the combined value of DB and AVC, effectively getting all of the AVC out tax free.

It does seem possible if you have no other pensions, maybe. 75% of £33,470 is less than £30,000 and the transfer rules do allow you to take a tax free lump sum without advice. So they might:

A. pay you a tax free lump sum of 25%
B. transfer to DC with no advice needed because it's less than the 30k DC threshold

If you were to do this you'd normally trigger the MPAA restriction on future pension contributions but they could structure if as three occupational small pots, perhaps, and pay that way.

The AVC is independent for this purpose.

There is a legal requirement to get financial advice before a DB transfer if the value is over £30k but the advice can be don't and you can still proceed. Get not follow is the requirement.

Hi, the current CETV is £35,627 and the current DB value is £906 p/a. 

It is due to mature in ten years time when I’m 65.

The AVC is managed by a different company (L&G) and current value is £8600.

I also don’t understand why the figures in the letter differ from the current values online.