Taking a small pension as a lump sum
A member may have the option to convert 100% of a 'small' pension into a one-off cash payment. In most cases 25% will be free of tax and the remaining 75% will be taxable as normal income in the year in which it is paid. This is known as 'trivial commutation' and the cash received as a trivial commutation lump sum.
The commutation must be made at any time on or after the member's 55th birthday (the relevant age will increase in line with the increase in state pension age so that the age at which a member can take trivial commutation remains ten years below the state pension age).
The total capital value of the pension that the member wishes to cash in, plus the total value of all the other UK registered pensions (excluding any state pension or pension you receive as a widow/widower/surviving civil partner/dependant of a deceased pension scheme member) to which the member is entitled, must be within the limit of £30,000.
All trivial commutations that you wish to make must be within 12 months of the date on which you cash the first one in. You do not need to cash in all of the pension you have, but if you take a trivial commutation from a particular pension you must cash in the whole of that pension.
You must have available Lifetime Allowance to pay the lump sum.
A member must complete a declaration confirming their total benefits before any trivial commutation lump sum payment can be made.
Alternatively, it may possible to commute a lesser amount (currently £10,000) if the conditions for the £30,000 limit are not met.
Further information can be obtained from the 'Trivial Commutation Explanatory Leaflet'.