Pension Triviality Rules
Advice you can trust
WHAT IS PENSION TRIVIALITY?
Currently, if you are aged 60 or more and the value of your combined pension funds is £30,000 or less, not including the state pension, you should be able to release the entire amount as a lump sum, rather than having a very small pension income for life.
Pension Triviality is only available to people aged 60 or over with a pension they no longer are paying into or receiving, where the total value of their pension pots are worth £18,000 or less.
It is easy to work out the value of some pension pots because they simply have a fund value.
Some company schemes, however; don’t have a fund value as such because they provide an income for when you retire based on your salary and number of years membership of the pension scheme. With these types of schemes a formula can be applied to calculate the equivalent fund value.
In addition to the above, if you have up to 3 separate pots of less than £10,000 each you can take these as a lump sum as well.
Below are some common questions we receive regarding pension triviality. Click on a question to read it’s answer.
There are some significant differences between Pension Triviality and Early Pension Release that need to be taken into account when deciding which one applies to you. In simple terms the main differences are as follows:
- The Pension Triviality rules allow for 100% of the pension fund to be released as a cash lump sum payment. Early Pension Release usually only allows 25% of the pension fund to be taken as a cash lump sum payment; the balance would have to be used to provide on-going income.
- The minimum age someone can take advantage of Early Pension Release is 55, whereas the earliest age someone can apply Triviality rules is 60.
- There is no minimum or maximum size pension fund applicable with Early Pension Release, however; Triviality can only be applied to total pension fund values of £18,000 or less.
Early Pension Release
In essence, Early Pension Release is potentially applicable for everyone aged 55 or over with a pension they no longer are paying into and are not receiving. It doesn’t matter how many different pensions schemes they may have or how much or little the pensions are worth.
Taking a pension early usually means you end up with a smaller pension at retirement so it is important to get professional advice. You’ll need to know the pitfalls of going ahead with this as well as the benefits.
Why would I want to cash in my pension/s under the pension triviality rule?
The government generally considers a pension fund of less than £30,000 to be a relatively small amount, which is why these rules were introduced in the first place.
For example, if a person aged 60 has a fund of £30,000 to provide a pension for life, based on current income rates this would give him approximately £134.50 per month*.
On the other hand, if that person was to take the entire fund as a lump sum under pension triviality, it would take just over 18 years for the monthly amount to pay more. In other words, it would take 18 years before you are better off by taking the income instead of the cash sum.
What is I have multiple pensions?
Currently, as long as the total amount doesn’t exceed the current threshold of £30,000, you should be eligible.
Some occupational schemes are difficult to value because your entitlement is based on an annual income, which needs to be converted into a fund value for the purposes of testing against the maximum threshold of £30,000.
What if I have another pension already in payment?
Even if you are currently receiving a very small pension, pension triviality rules can still be applied to any other pension funds that haven’t yet been taken.
How is the triviality threshold calculated?
The government have set the threshold to April 2015 when new rules apply. Click here for more detail of the new rules.
If you do cash in a pension under pension triviality rules, normally a quarter of the amount paid is tax-free with the remainder potentially subject to income tax.. You should remember that future rates of tax can change and actual tax treatment will depend upon your individual circumstances at the time.
What if I am getting state benefits?
If you are in receipt of any means tested state benefits, particularly the pension credit, by taking the additional taxable lump sum those benefits are likely to be affected.
What if I exceed the limit?
If you have more than £30,000 in pension pots, but some individual ones are less than £10,000, then you can still take these small pots as a cash lump sum. You are allowed 3 such small pots. From April 2015 the rules changed. Please click here for more detail. In any event we can still help you.
How do I find out if I am eligible?
This is very easy and we offer a free service to find out.
- Complete the Get Started form
- This will allow you to print off an “enquiry form“, which you will need to complete and send to us. A freepost address is provided.
- You must include all your pensions as this is vital for establishing your entitlement. A separate enquiry form should be completed for each pension.
- Once we have found out about your pensions we will contact you to discuss your options.