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Triviality Rules

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PENSION PRODUCTS
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Triviality Rules

LEGACY INFORMATION RELEVANT PRIOR TO 6 APRIL 2006

Trivial pensions are pensions which are small enough that they can be fully exchanged for cash.

The rules take into account preservation and contracting out requirements. The rules differ for Occupational Pension Schemes and Personal / Stakeholder Pension Schemes.

Occupational Schemes

Schemes may pay pension as a lump sum subject to:

  • total pension payable being less than £260 per annum
  • all scheme benefits being paid as a lump sum
  • scheme pension age has been reached
  • the scheme has a triviality rule
  • age 60 has been reached if contracted out benefits are included

Taxation - The scheme must deduct tax at 20% from the amount of lump sum in excess of the maximum commutable lump sum under the scheme rules.

Personal / Stakeholder Pension Schemes.

Fund may be paid as a lump sum if all below are fulfilled:

member has reached age 60 (if part of fund is Protected Rights*) or, is 50 years of age or over, if fund is all Non Protected Rights. They may be taken earlier if member has retired on grounds of incapacity;

member only has one personal pension scheme, is not being paid an annuity from a personal pension scheme and has never had a trivial personal pension lump sum in the past;

member's fund under the scheme, before any tax-free cash is taken, is either
(i) less than £2,500 if there are no Protected Rights; or
(ii) total fund will not provide a pension of at least £260 per annum if there are Protected Rights;

member gives up any rights under the scheme, is aware that tax will be payable and agrees to the repayment.

* If total benefits are less than a pension of £260 and member is aged 50 or over the , non-Protected Rights can be commuted and the Protected Rights left to age 60 when another Triviality Test would need to be done.

Taxation - scheme administrator deducts tax under PAYE (at basic rate if no tax code is held) from the excess of the fund (at basic rate if no tax code is held)over the tax free lump sum allowable, and pay it to its Tax Office. The member is informed of the tax deducted and should enter the net payment and tax deducted in their tax return. If the member is a non taxpayer they need to notify their tax office.


For UK Adviser Use Only - Not Approved For Use With Clients