Can I take my whole deferred pension as a cash lump sum?
If your deferred pension is small you may be able to exchange it for a one-off lump sum payment, known as either a small lump sum or trivial commutation lump sum, subject to certain conditions. If you decide to exchange your pension for a one-off lump sum, all of your pension rights, including survivor's benefits (i.e. any spouse or partner pension or dependent child allowances that may apply), are given up.
If your deferred pension is below a certain amount you may be required to take it as a one-off lump sum from the Scheme instead of regular pension payments.
|Pension (cash equivalent) values below £2,000||If the cash equivalent value* of your deferred pension is less than £2,000 (currently pensions of up to approximately £100 a year) it can only be drawn as a small lump sum.|
|Pension (cash equivalent) values between £2,000 and £10,000||If the cash equivalent value* is greater than £2,000 but less than £10,000 (currently pensions of up to approximately £500 a year), exchanging your pension for a small lump sum is optional. If your deferred pension has a cash equivalent value of £10,000 or less, you can exchange it for a one-off small lump sum at any time after GMP Age (age 65 - men; age 60 - women) or from age 55 if your pension does not include a Guaranteed Minimum Pension (GMP) entitlement.|
|Pensions with Lifetime Allowance values between £10,000 and £30,000||If the deferred pension that you wish to exchange for a lump sum has a cash equivalent value* of more than £10,000 (so it cannot be cashed in under the small lump sum rule), it may still be possible to exchange it for a one-off 'trivial commutation lump sum' as long as the total value of all pensions you hold in the BA Schemes and in any other UK-registered pension arrangements have a combined Lifetime Allowance (LTA) value of less than £30,000 (broadly equivalent to a pension of around £1,500 a year) and you have unused Lifetime Allowance available. A trivial commutation lump sum can be paid at any time after GMP Age (age 65 - men; age 60 - women) or from age 55 if your pension does not include a Guaranteed Minimum Pension (GMP) entitlement.|
* The 'cash equivalent value' represents the value of your whole pension, in cash terms.
- You must exchange all the benefits you have within NAPS for a lump sum at the same time.
- When taking a small lump sum (cash equivalent values of £10,000 or less) you do not have to take into account any other benefits that you may hold within other pension arrangements.
- If you have started a 12-month trivial commutation period (this is explained below) you cannot then exchange any small pensions for a lump sum with a cash value of less than £10,000 under the small lump sums rule.
- If the NAPS pension that you wish to exchange for a lump sum has a cash equivalent value of more than £10,000 (so it cannot be exchanged for a lump sum under the small lump sum rule), it may still be possible to exchange it for a one-off trivial commutation lump sum as long as the total value of all pensions you hold in the BA Schemes and in any other UK-registered pension arrangements have a combined Lifetime Allowance (LTA) value of less than £30,000, and you have unused Lifetime Allowance available.
- You have a 12-month period in which to exchange any small pensions you hold for a lump sum, starting on the date you exchange the first pension for a lump sum. Any small lump sum taken before the 12-month trivial commutation period started does not need to be counted in any assessment for trivial commutation as small lump sums do not count towards the Lifetime Allowance.
To decide if you can draw your pension as a one-off trivial commutation lump sum, you must add its Lifetime Allowance (LTA) value to the LTA value of any pension entitlements you hold in other UK pension arrangements to work out whether they fit within the £30,000 trivial commutation limit. How this works will depend on whether you are already receiving an income from the pension or not, as explained below.
For pensions that are not already being paid to you
For ‘defined benefit’ pensions (which are usually worked out using a fixed formula based on the member’s salary and their length of pensionable service (such as your NAPS pension) instead of the contributions paid in or investment performance of the fund), the Lifetime Allowance value is worked out by multiplying your current pension entitlement by 20 and adding the cash value of any AVCs you have saved;
For ‘personal pensions’, which are based on your own contributions and are known as ‘defined contribution’ arrangements, you may have a recent statement showing the cash value of your fund which will give you a guide. You should ask your pension provider for an up-to-date quotation.
For pensions that are already being paid to you
Pension payments that began before 6 April 2006 are valued for LTA purposes as 25 times the annual gross pension you were receiving at 5 April 2006 (so a pension of £750 a year at 5 April 2006, for example, would have a Lifetime Allowance value of £18,750).
Pension payments that began after 6 April 2006 are valued as 20 times the annual gross pension at the date you drew the pension (so a pension of £750 a year, for example, would have a Lifetime Allowance value of £15,000 but if you received a tax-free lump sum when you drew the pension, the amount of the lump sum must be added to this value. So if you took a lump sum of £2,000, the total Lifetime Allowance value would be £15,000 + £2,000 = £17,000). You should receive yearly statements from your pension provider to confirm the amount of Lifetime Allowance used up when you drew your pension.
Any small lump sums that were paid to you before the 12-month trivial commutation period starts do not need to be counted in any assessment for trivial commutation.
It is important to remember that this valuation is for testing your eligibility against the £30,000 limit only and the actual amount the Scheme will pay out may be different.
Yes. The first 25% of the payment will be tax-free but tax will be deducted on the remaining 75% under Pay As You Earn (PAYE) at the time of making the payment to you. If you choose to draw your NAPS deferred pension as a small or trivial commutation lump sum, we will deduct tax using a 'basic rate' tax code – usually a flat rate of 20%.
We will provide you with a form P45, as if you were leaving a job, showing the amount of the lump sum payment and the amount of tax deducted.
The tax-free portion of the lump sum amount will be paid on the first working day after the date you choose to exchange your pension benefits for a lump sum and the taxable portion will be paid through our pension payroll at the end of the following month.Close
There is no provision for allowing payments that exceed the lump sum limits to be partly tax free; we cannot make a payment which takes you over the limit. For trivial commutation it is important to be aware that if, as a result of receiving several trivial commutation payments, the total of the lump sums you have received exceed the £30,000 limit then all of the trivial commutation lump sum payments you have received may become subject to a penalty rate of tax at 40%. This is particularly important to be aware of when exchanging several pensions for trivial commutation lump sums on separate occasions within the 12 month trivial commutation period.Close