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(NI) 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
Where:
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. In the Classic scheme a member receives a lump sum in addition to pension. For the purposes of calculating a trivial commutation lump sum, the factor should be applied only to the annual pension amount (the lump sum is in addition).
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 . The table applies 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 'former contributing member' (the factors for which include allowance for a member and dependant's pension) or 'dependant'. Where the member's status is 'pension credit member', the 'dependant' factors should be used.
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 is the 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 is the Factor at age X
FX+1 is the 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.
