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Adviser  >  Technical Central  >  Pre simplification  >  Occupational  >  Triviality Rules Under Occupational Pension Schemes

Triviality Rules Under Occupational Pension Schemes

The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.

To avoid the need under Occupational Pension Schemes (OPSs) to pay small pensions it is possible, in certain circumstances, for the whole of a pension fund to be returned to the member as a lump sum. This is commonly known as ‘commutation on the grounds of triviality’. This analysis gives details of the main conditions that must be met to commute on the grounds of triviality under OPSs.

1. A trivial pension may be commuted in the following circumstances:
2. allowed under the scheme rules
3. pensions already in payment
4. on winding-up of the OPS
5. if all the member's rights are Equivalent Pension Benefits (EPBs) derived from contracting-out of the State Graduated Pension Scheme and the member has consented to the triviality payment.

There are conditions that apply to 1, 2 and 3.

Allowed under the scheme rules

• The scheme rules must contain a triviality rule. Some schemes, typically those in the Public Sector, do not contain a triviality rule.
• Total benefits under all schemes in respect of the same employment do not exceed a pension value of £260 per annum. This includes any pension payable from Additional Voluntary Contributions (AVCs) and Free Standing Additional Voluntary Contributions (FSAVCs).
• The total benefits do not have to include a pension debit in respect of any divorce settlement. However, where an ex-spouse has been granted a pension credit and is also an employee any pension credit must be included in the value of benefits for the purposes of calculating whether they are trivial or not.
• Widow(er)’s and dependants pensions can also be commuted.
• Where there are contracted-out benefits the conditions that apply depend on whether there are GMP, Post 97 Contracted-Out Salary Related (COSR) rights or protected rights.

GMP and Post 97 COSR rights

Can be commuted on the grounds of triviality where

• the member has reached State Pension Age, and
• total benefits provide a pension not exceeding £260 per annum.

Protected rights

Can only be commuted on the grounds of triviality where the member has reached age 60. Non-protected rights can be commuted before age 60 provided that total benefits including protected rights do not exceed a pension of £260 per annum.

• Special conditions apply where retirement is on the grounds of serious ill-health i.e. where expectation of life is very short, interpreted as meaning less than 1 year.
  • Medical evidence must be obtained to support the view that the member is allowed to commute benefits on the grounds of serious ill-health.
  • Widow(er)’s and dependants pensions cannot be commuted in these circumstances.
  • GMP benefits cannot be commuted. Where GMPs are present and the non-GMP benefits are commuted there is no tax charge payable on the triviality payment.
  • Protected rights can be commuted. Where the member is married only half of the protected rights fund can be commuted. In this situation, as with GMPs, there is no tax charge payable on the triviality payment.
  • If the member is a controlling director the prior agreement of the Inland Revenue Savings, Pensions, Share Schemes office is required

Pensions already in payment

It is normally the case that where pensions are trivial they will be commuted at the time they become payable. However, there are instances where this isn’t the case:

• the triviality threshold (the £260 per annum limit) is increased meaning that a pension that wasn’t trivial before the increase becomes trivial
• when the GMP comes into payment at SPA and total benefits are actually less than £260 per annum
• where the scheme rules are changed to allow commutation on the grounds of triviality.

On winding-up of the OPS

Where an OPS is winding-up commutation of GMP and Post 97 COSR rights is permitted. This applies even where there is no scheme rule to permit commutation on the grounds of triviality. Where fixed rate revaluation applies to any GMP this has to be revalued to SPA to determine if it is trivial.

Taxation of lump sums paid out on the grounds of triviality

A 20% tax charge applies to the amount in excess of the member’s maximum tax-free cash sum that would have been available from the scheme. There is no tax charge payable where widow(er)’s or dependants pensions are commuted and in some circumstances where retirement is on the grounds of serious ill-health as mentioned above.



The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.

The details shown are based on our understanding of current taxation law and practice and may be affected by future changes in legislation.

Published 19 March 2004