September 2007

Q & A - Pensions Triviality

Q. I am a 58 year old lady and have paid into two personal pensions for the last 10 years. I am a basic rate tax payer and my pension funds are now valued at £12,000 not including my state pension benefits. I have heard I can take my pension fund as a lump sum without having to buy a pension, is this correct?

A. Once you are aged between 60 and 75 and provided your total pension benefits are under the limits for a triviality payment (£16,000 in 2007/8) you can take your benefits as a taxable lump sum benefit. If you choose to go down this route you must take all the benefits from the schemes over a 12 month period and you can not take only part of the benefits you must take them all. Normally the first 25% of the fund will be tax free and the remainder will be taxed as earned income. So in your case £3,000 would be paid out free of tax and £9,000 would be taxed at 22% meaning a lump sum payment of £10,020 to you. Pensions in payment can also be considered for triviality and financial advice should be sought when considering these options. There is a penalty for anyone who fraudulently obtains a triviality payment.