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 PCSPS rules (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 at the calculation date except for a member below age 55. For a member below age 55 years at the date of trivial commutation (ie calculation date), the Total pension is the annual rate of pension that is being trivially commuted at the calculation date plus any pension increases accrued up to the calculation date that would ordinarily be withheld until the member had reached 55 years of age. (For the avoidance of doubt the pension increases accrued are those pension increases up to the April prior to the calculation date.)
The Factor should be interpolated for the member's actual age (complete years and days) - see formula below. The Factor should be taken from table P1TCCL1 for classic members or P1TCPN1 for premium and nuvos members. These tables apply to both male and female members - i.e. the factors are unisex. The factor will depend on status at the date of trivial commutation. Status refers to either a former contributing 'member and spouse' or 'dependant' or 'pension credit member'.
Where a classic plus member is commuting a small pension, a separate calculation should be undertaken for each of their classic and premium benefits and the total lump sum payable is the sum of the results of the two separate calculations.
The factor should be interpolated for the member's actual age (complete years and days). The (interpolated) factor is derived as follows:
Factor = Fx + [(Y/N) x (Fx+1 - Fx)]
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)
Fx = Factor at age X
Fx+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.
