Yanette will also need to bear in mind that she might pay less tax if she does not take all of her pensions out at once. By the end of this year, there are likely to be more than 11 million small, deferred pots in total; without any change in the next ten years, that figure will likely double again. Small pot payments extinguish the members entitlement to benefits under the arrangement from which the payment is made, but not necessarily their entitlement under the scheme as a whole. A small pot lump sum is not the same as a trivial commutation lump sum (which is payable under Article 131CE (1) of the Tax Law where a member is aged at The payment of such a lump sum would not prevent the member from continuing their membership of the scheme (and ability to contribute thereto) following the 2018 amendments. 25% of lump sum will be tax-free, the balance will be taxed at the member's marginal rate. You should return the form to HMRC, together with parts 2 and 3 of the form P45 given to you when you received the trivial commutation lump sum. The 25% deduction is given to reflect that, if the trivial commutation lump sum wasnt paid and normal benefit rules applied, the member would (generally) be entitled to a tax-free pension commencement lump sum, representing 25% of the capital value of the benefits coming into payment. Should you wish to raise any issue or concern, please contact us via [email protected]. So if someone takes their small lump sums first and their remaining defined benefits pension rights are then within 30,000, potentially rights of up to 60,000 could be taken - 3 personal pension or stakeholder lump sums of 10,000 each and then 30,000 under trivial commutation. Then, contact the pension fund and ask for an updated statement and consider if it is worth consolidating. For now, you can keep an eye on announcements from the Treasury on its website. This website is intended for financial advisers only and shouldn't be relied upon by any other person. Financial advisers are taking advantage of a loophole in small pots lump sums rules that they are being warned could be considered aggressive avoidance in a breach of HM Revenue & Customs rules. Small Pension Pot
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