Various restrictions on trivial pension commutation are imposed by HMRC. The scheme administrator should ensure that the payment of a lump sum in lieu of a small pension is compliant with these as well as with the scheme regulations.
The lump sum payable in respect of commutation of a trivial pension (in addition to any other lump sum due) should be determined as follows:
Lump sum payable = Total annual pension amount x factor
Where:
Total annual pension amount is the annual pension that would otherwise be put into payment if trivial commutation were not to proceed. Therefore, this pension is the pension after any reduction due to Scheme Pays (please refer to the actuarial guidance on Scheme Pays for more details of the calculation of this benefit reduction) or due to commutation for tax free cash if relevant. Any automatic tax free cash taken would be payable in addition to the lump sum calculated above.
Total benefits must be considered when assessing whether trivial commutation may be allowed under HMRC limits. Different limits apply depending on whether just NHSPSS benefits are considered or whether pension savings from all sources are taken into consideration.
factor should be determined from Table 501 or 502 of the Consolidated Factors Workbook as applicable for the member's age (age attained in complete years), Section (1995 or 2008) and status at the date of commutation. Status refers to either 'former contributing member' or 'dependant'.
For 'former contributing members' it is assumed that trivial commutation is in lieu of retirement, that is, that the member's pension has not come into payment. By electing for commutation the right to contingent benefit following the member's death lapses.
