The scheme administrator should ensure that the payment of a lump sum in lieu of a small pension is compliant with tax rules as well as with the Regulations. (For example, limitations where benefits include Guaranteed Minimum Pension (GMP).)

The lump sum payable in respect of commutation of a small pension (in addition to any other lump sum due) should be determined as follows:

Trivial commutation lump sum = Total pension x Factor

The Total pension is the annual rate of pension that would otherwise be put into payment if trivial commutation were not to proceed.

The Factor should be interpolated for the member's actual age (complete years and days) - see formulae below. The Factor should be taken from table P2TC1. This table applies to both male and female members. The factor will depend on status at the date of trivial commutation. Status refers to either 'former contributing member', 'dependant' or 'pension credit member'.

The factor should be interpolated for the member's actual age (complete years and days). The (interpolated) factor is derived as follows:

Factor = F_x + [(Y/n) x (F_x+1 - F_x)]

Where:

Member age is X years and Y days at date of commutation.

n = number of days between member's age X and age (X+1) (normally n will be 365, except in the case of a leap year where it will be 366)

F_x = Factor at age X

F_x+1 = Factor at age (X+1)

We have simplified the presentation of the interpolation formula, but the effect of the formula is the same as the old formulation i.e. it gives the same answer, so there is no need to update administration systems.