Call: 0800 011 3797

Call: 0800 011 3797

Webchat

Taking a small pension as a cash lump sum

You may be able to take the whole of your pension as cash, whether your pension is defined benefit or defined contribution.

Under triviality rules it may be possible for a member of a defined benefits scheme to take all of their benefits as a one off lump sum via ‘trivial commutation’ or taking a ‘trivial lump sum’, provided the scheme rules allow this. The total value of a member’s benefits (not just the defined benefits) cannot be more than £30,000.

Triviality does not apply to defined contribution schemes as there are  flexible rules already in place for taking these benefits in one go.

Under separate small pots rules you may be able to take up to three small pots of £10,000 each from non-occupational schemes and an unlimited number from occupational schemes, provided their rules allow this.

Rules on taking a small pension as a cash lump sum

You may be able to take the whole of your pension as a trivial commutation lump sum if:

  • You’re aged at least 55, or you’re retiring at an earlier age because of ill-health; and the value of all your pension benefits (including defined contribution pensions and pensions already in payment, but ignoring any State Pension) when added together do not exceed £30,000 in total.

You may be able to take the whole of your pension as a small pot if:

  • you’re aged at least 55, or you are retiring at an earlier age because of ill-health; and
  • the value of your pension arrangement does not exceed £10,000.

Unlike trivial commutation, you do not have to take into account any other pension benefits you may have when giving up a pension for a small pot. You may be able to take up to three small pots of £10,000 each from non-occupational schemes, and an unlimited number from occupational schemes, provided their rules allow this. 

Valuing your defined benefit pension before you have started to take it for trivial commutation purposes

The value is your annual pension entitlement, multiplied by 20 plus any separate tax-free cash sum. 

 

Valuing your pension before you have started to take your benefits for small pot purposes

If you’re in a defined contribution scheme, the value is simply the amount of money in your pension pot. If you’re in a defined benefit scheme, the value is the amount the pension scheme places on the pension benefit you have with them plus any separate tax-free cash sum.

 

What happens if I have more than one defined benefit pension for trivial commutation purposes?

If you can give up more than one pension for trivial commutation purposes, you do not have to take them all at the same time. You have a period of twelve months from the date you were paid the first lump sum payment to commute the rest. If you fail to do so, you lose this option.

 

Tax treatment of taking a trivial commutation lump sum and/or a small pot

If benefits are not in payment, you should have the option to take 25% of the pension value as a tax-free cash sum. The remainder is added to the rest of your taxable income in the tax-year in which you take it when determining any income tax liability

If benefits are in payment, the lump sum value of your pension will be added to the rest of your taxable income in the tax-year in which you take it when determining any income tax liability.

Click here to find out more about tax and cash lump sums.

 

Frequently asked...

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

We never contact our customers out of the blue
We're all ears How do you feel about the help you just received?

We would really appreciate a few minutes of your time.
Your feedback helps us create a better experience for you.