Trivial Commutation is an option where members can take a taxable lump sum from the Local Government Pension Scheme (LGPS) in lieu of a small pension. Under certain circumstances, it is possible to commute a pension for a LGPS member, their survivor’s, eligible children or pension credit members provided that certain criteria are met.
For a trivial commutation payment to be made, you MUST meet the following criteria:
- You must be at least age 55, or age 60 in the case of a woman with a Guaranteed Minimum Pension (GMP), or age 65 in the case of a man with a GMP, with no upper age limit.
- Take one-off lump sums in respect of all your LGPS benefits in England and Wales, not just Gwynedd.
- Not previously received a trivial commutation lump sum from any registered pension scheme or, if such a lump sum has been paid, the trivial commutation lump sum from the LGPS must be paid within 12 months of the day on which the first trivial commutation lump sum was paid to the member;
- You are not a ‘controlling director’ or someone connected with a ‘controlling director’, of an LGPS employer.
If you stopped paying into the scheme after 1 April 2008
We must value the total of all your pension pots, both LGPS and non-LGPS. If these do not exceed £30,000 we may be able to pay a one-off lump sum as a trivial commutation. The value of your pension is the total capital value and not the annual amount of the pension payable.
To check your eligibility, we will need details of your other pension pot values held outside of the LGPS. You will need to request this directly from your other pension providers.
You have an additional option as we can value your LGPS benefits only. Provided the capital value of these does not exceed £10,000, we may be able to pay a one-off lump sum. This is known as de minimis.
The ‘de minimis’ rules are:
- You must be 55 or over or GMP age
- Payment must not exceed £10,000
- You must not be a controlling director of the sponsoring employer
- Payment will extinguish your right to benefits under the scheme
- There must not have been a transfer-out of the scheme in the three years preceding the date of payment.
To determine if you meet the criteria for trivially commuting your pension within the LGPS, you will need to calculate the value of your pension pot. This is not the same as your annual pension and is calculated as:
20 x annual pension + automatic lump sum (if applicable) + value of your AVC fund (if applicable)
If you started receiving your pension before 6 April 2006, these are normally valued at 25 times the annual pension income as it was on 5 April 2006, and you do not need to add on any previous lump sums.
Calculating the trivial commutation payment is complicated. 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% of the trivial commutation payment tax free. The rest will be subject to Income Tax.
If you stopped paying into the scheme before 1 April 2008
We must value the total of all your pension pots, both LGPS and non-LGPS. If these do not exceed £30,000 we may be able to pay a one-off lump sum as a trivial commutation. The value of your pension is the total capital value and not the annual amount of the pension payable.
To check your eligibility, we will need details of your other pension pot values held outside of the LGPS. You will need to request this directly from your other pension providers.
Things to consider
Before deciding whether to take a trivial commutation payment, you should consider whether this is the best financial option for you.
Taking your pension as a one-off lump sum means that:
- you will not receive monthly pension payments
- we will have no liability for you in the LGPS
- if you were to pass away before your spouse, civil partner or cohabiting partner, they would not receive a survivor’s pension
View more information about trivial commutations on the https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/taking-your-whole-pension-in-one-go
The option to take a small pension as a lump sum will only be provided to you if we think you might meet the criteria. If this applies and you are interested in this option please get in touch, we will then send you further information.