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Treasury faces calls to split DB and DC trivial commutation

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The Treasury is facing calls to split defined benefit and defined contribution trivial commutation so that people are not forced to annuitise small DC pension pots.

Current trivial commutation rules allow people who are over 60 years old with total DB and DC pension savings worth less than £18,000 to take their entire pot as cash.

Hargreaves Lansdown head of pensions research Tom McPhail wants the Government to undertake an overhaul of the regime so that people with DC savings worth less than £15,000 at age 60 can trivially commute the entire pot, even if they have other DB savings which push them over the £18,000 overall limit.

He says: “You could potentially completely divorce DB and DC trivial commutation. So if someone has DB benefits, the Treasury would ignore those for the purposes of DC trivial commutation. 

“In effect, that would allow anybody to build up cumulative DC rights of up to, say, £15,000 and take that money as a lump sum. If nobody had to sell an annuity to anyone with a pension pot worth less than £15,000, it would make the market much more efficient.”

Aviva head of policy, pensions and investments John Lawson says: “There is definitely a case for divorcing DB and DC trivial commutation.

“If you had a separate limit for DC of, say, £18,000, it would make sense for the saver to be able to cash that in as a lump sum. The reality is that it is
difficult to buy a decent annuity with a DC pot worth less than £18,000.”

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  1. And why not make the triviality total limit 2 or 3 x the LTA with a minimum of £36k (i.e. 2 x the trivial limit, as 3 x LTA would be £36k too?)

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