Money Matters: What is pension triviality?

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The triviality rules allow benefits to be commuted and paid as a one-off lump sum payment (a trivial commutation lump sum) if the value of someone’s pension rights from all registered pension scheme sources doesn’t exceed the current commutation limit of £18,000.

Before April 6, 2012 the commutation limit was one per cent of the standard lifetime allowance. Other factors that need to be in place are that the person has reached age 60; has some unused lifetime allowance left; the payment eliminates their rights under that scheme and where applicable, the payment is made within 12 months of the first trivial commutation lump sum. This point is important as if someone has trivial benefits spread across more than one pension scheme, any trivial commutation lump sums to be taken must be paid within a single 12-month period.

The clock starts ticking when the first scheme pays its lump sum. After the 12 months, no more trivial commutation lump sums can be paid. Trivial commutations that took place before April 6, 2006 don’t count for this purpose. The triviality rules can be used for both crystallised rights and uncrystallised rights, including guaranteed minimum pensions (GMP).

The starting point is for the member to choose a date to value the pension rights for testing against the commutation limit. The lump sum must be paid out within three months of this nominated date – where multiple schemes are involved, this only applies to the first payment. The lump sum can still be paid even if the benefit value has grown to more than the commutation limit by the time it’s actually paid, as long as it was within the limit on the nominated date. In addition there are rules to allow small ‘stranded pots’ of £2,000 or less to be paid as a lump sum in certain, limited, situations.

Please note there are different triviality rules for small pensions payable to survivors on a member’s death; and occupational pension schemes which are being wound up, to enable the scheme trustees to deal with smaller funds.