Trivial commutation
If you’re thinking about taking all your pension in one go, you need to know about trivial commutation. The following information is worth considering before making your final decision.
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What is trivial commutation?
It’s the technical term for taking all your pension as a one-off lump sum. If you choose this option, you’ll receive one single payment, instead of monthly payments. Just be aware that this lump sum will be subject to income tax (although you may be able to receive the first 25 per cent tax free).
There are two types of payment options:
- More than one pension scheme: where the value of all your pensions across all providers (excluding your State Pension) doesn’t exceed £30,000. If you choose this option, you must take all of your LGPS and non LGPS trivial lump sum payments included in your total within 12 months of the first payment.
- LGPS pension only: where the value of all your LGPS benefits in England and Wales as a trivial lump sum doesn’t exceed £10,000 in total. This option is only available to you if you left the scheme after 1 April 2008.
The government sets strict rules about who can do this. It depends on the size of your benefits in the LGPS and whether you meet certain criteria. For example, whether you are a deferred member, currently paying into a scheme or receiving a pension.
- If you paid into your scheme before 6 April 1997, you must be at least aged 60 for a woman and 65 for a man to be eligible – this also applies if you have a Guaranteed minimum pension (GMP). See our GMP web page
- If you paid into your scheme on or after 6 April 1997, you must be at least age 55
The above doesn’t apply if you have ill health, as you will be able to take all your pension in one go at any age – see our Ill health web page
You may be eligible to take all your pension in one go if:
To check your eligibility, we will need details of the values of other pensions you hold outside of your scheme. You will need to request this directly from your other pension providers.
We’ll also need to work out the ‘capital value’ of your pension (this is not the same as your annual pension) and is calculated as follows:
How your 'capital value' is worked out
20 x annual pension + automatic lump sum (if applicable) + value of AVC fund (if applicable)
The pension value is not the amount you will receive. We work out the payment using factors issued by the Government Actuary’s Department (GAD), which are based on your age and the value of your pension.
Income tax will also be deducted from the amount you receive. If you’re yet to receive payment of your pension, you will usually be able to receive 25 per cent of the payment tax free. The rest will be subject to income tax. You can find out more about tax on taking all your pension in one go in the HMRC Pensions Tax Manual.
Before deciding whether to take all your pension in one go, you should consider whether this is your best financial option.
Taking your pension this way means that:
- You will not receive monthly pension payments
- We’ll have no liability for you in the LGPS – meaning you won’t be entitled to any further benefits from the scheme
- If you were to die before your spouse, civil partner or cohabiting partner, they would not receive a survivor’s pension and no death grant would be payable
Please be aware, if you ask to receive your pension when you leave your employment, we will confirm your eligibility to take all your pension in one go in your retirement pack. You should review the eligibility criteria and contact us if you think you qualify. We can then give you an estimate of the amount you could receive, but you will be under no obligation to take the payment at that stage.
It’s also worth getting some independent financial advice before you make a decision.
To find out more about taking all your pension in one go, visit MoneyHelper.
