Cashing in small pensions

If you have a small pension you may be able to cash it in and exchange it for a one off final cash lump sum called a ‘trivial commutation’. 

Members with very small pensions have the option to exchange them for a one-off taxable cash payment, known as trivial commutation, provided that they meet certain conditions set out by HM Revenue & Customs.

There are two different commutation options:

The first option applies if you are entitled to a pension of less than £10 per week and are over age 50. To qualify for trivial commutation on this basis, you must have less than £10,000 of MPS pension savings. As a guide, this is broadly equivalent to a pension of £10 per week or less.

The second option has a greater number of qualifying conditions, which again are specified by HM Revenue & Customs. These qualifying conditions are:

  1. You must be aged over 50
  2. The value of all your pension arrangements (ignoring any State Pension) when added together must not exceed £30,000 in total. As a guide, this is broadly equivalent to a total pension of £29 per week;
  3. If your pension contains a GMP element then you will not be able to apply for trivial commutation until you reach your GMP payment age (which is 65 for men and 60 for women); and
  4. If you have already trivially commuted any pension benefits from another arrangement and did so more than 12 months ago (unless the previous payment was made before 6 April 2006), you will not be able to apply for trivial commutation.   

If you would like to know more about either of these options, please contact the Scheme Administrator.

Tax treatment of taking a trivial commutation lump sum:

If you take a trivial commutation lump sum, 25% of the pension value should be paid 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.