PTM073700 - Death benefits: lump sums: trivial commutation lump sum death benefit
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives.
If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
Glossary |
Paying a trivial commutation lump sum death benefit
Conditions for paying a trivial commutation lump sum death benefit
The maximum trivial commutation lump sum death benefit payable
When a trivial commutation lump sum death benefit can be paid
Who can be paid a trivial commutation lump sum death benefit
A trivial commutation lump sum death benefit and the lump sum and death benefit allowance
How a trivial commutation lump sum death benefit is taxed
Paying a trivial commutation lump sum death benefit
Where an individual is entitled to either:
- a small dependant’s pension, or
- a member’s pension which continues to be paid after the member’s death under a pension guarantee (see PTM071500)
from a registered pension scheme, that pension can be commuted and taken as a lump sum instead. This is a trivial commutation lump sum death benefit. To be a trivial commutation lump sum death benefit the lump sum must meet the conditions set out below.
Conditions for paying a trivial commutation lump sum death benefit
Paragraph 20 Schedule 29 Finance Act 2004
A trivial commutation lump sum death benefit can be from a defined benefits, cash balance or other money purchase arrangement
Commuting a dependant's pension
Paragraph 20(1A) Schedule 29 Finance Act 2004
To be a trivial commutation lump sum death benefit, a lump sum paid to a dependant must:
- be paid to a dependant who is entitled under the pension scheme to a pension death benefit in respect of the member, and
- extinguish that dependant’s entitlement to both pension and lump sum death benefits under the scheme in respect of the member.
These are the payment conditions for lump sums paid on or after 6 April 2011. For guidance relating to payments made before 6 April 2011 see RPSM10105260 on the National Archives.
Commuting a pension guarantee
Paragraph 20(1B) Schedule 29 Finance Act 2004
From 6 April 2015 a scheme pension or annuity that continues to be paid under a pension guarantee (see PTM071500) may be commuted into a trivial commutation lump sum death benefit.
If the scheme pension is payable by a scheme administrator the lump sum must extinguish all the individual’s entitlements to receive scheme pension guarantee payments from the scheme.
If the scheme pension or annuity is payable by an insurance company the payment must extinguish all the individual’s entitlements under the contract providing the guaranteed pension or annuity.
The maximum trivial commutation lump sum death benefit payable
Paragraph 20(2) Schedule 29 Finance Act 2004
The maximum amount that can be paid from a scheme as a trivial commutation lump sum death benefit is £30,000.
This is the maximum amount per scheme, not a maximum across all schemes.
Where the amount of the lump sum paid is more than the maximum amount, the excess is not a trivial commutation lump sum death benefit. If it cannot be paid as some other type of authorised lump sum death benefit the excess is an unauthorised member payment and taxed accordingly (see PTM131000).
When a trivial commutation lump sum death benefit can be paid
Paragraph 20 Schedule 29 Finance Act 2004
There is no time limit for making the payment. The dependant’s pension or the remainder of the member’s pension payable under a guarantee can be commuted either at the outset or at any time thereafter.
If the:
- lump sum was paid on or after 6 April 2015, or
- member died after 5 April 2011
a trivial commutation lump sum death benefit can be paid whatever age the member was when they died.
If the lump sum was paid before 6 April 2015 and the member died before 6 April 2011 then a trivial commutation lump sum death benefit may be paid only if:
- the member was aged under 75 when they died, and
- the lump sum is paid before the day the member would have reached age 75.
Who can be paid a trivial commutation lump sum death benefit
Paragraph 20 Schedule 29 Finance Act 2004
Where a dependants’ pension is being commuted, the lump sum is payable to the dependant entitled to be paid that dependants’ pension.
Where a pension paid under a pension guarantee is being commuted, the lump sum is payable to the individual entitled to be paid that guaranteed pension.
A trivial commutation lump sum death benefit and the lump sum and death benefit allowance
Section 637S Income Tax (Earnings and Pensions) Act 2003
A trivial commutation lump sum death benefit is not a relevant lump sum death benefit and is not therefore a relevant benefit crystallisation event. It does not use up any of the deceased member’s or the recipient’s lump sum and death benefit allowance.
How a trivial commutation lump sum death benefit is taxed
Sections 579A, 579D and 637N Income Tax (Earnings and Pensions) Act 2003
The whole lump sum is taxable as pension income of the dependant or individual entitled to receive it.
As the payments are taxable as pension income the rate of tax is the lump sum recipient’s marginal rate of tax for the tax year in which the lump sum is paid. So, if the individual is a basic rate taxpayer, the rate is basic rate and if the individual is a higher rate taxpayer the rate is the higher rate applying to the individual.
Guidance on how to operate PAYE correctly on these lump sums can be found in CWG2 - Employer’s further guide to PAYE and NICs.