Pension Trivial Commutation
If you have a £200,000 pension fund at age 65 you might expect a pension income of around £10,000 per annum before tax. If you have a pension fund of £2,000 you might hope for a pension income of £100 per annum (or £8.33 a month) less tax. But it probably costs the pension income provider the £10 a month just to make payment and it is a small amount which may not make much difference to your standard of living and as an annuity, you may not live long enough to recover all of the fund value.
There are two ways of getting around these problems:
Individual Trivial Commutation
If an individual’s total pension fund from all schemes is under £30,000 then it may be paid as a lump sum – less tax.
Scheme Trivial Commutation
New regulations now allow schemes to avoid having to pay small pensions, and regardless of benefits under other schemes, they allow schemes to pay benefits worth less than £10,000 as a lump sum, less tax.