Consultants have reported more schemes considering bulk trivial commutation exercises, in an attempt to drive down administration costs and liabilities, after the amount members could take as a lump sum was increased.
Announced in the Budget, these changes came into effect in March, and consultants say the number of defined benefit schemes looking at carrying out bulk commutation exercises has since increased. “We definitely are seeing an uptick since the Budget changes,” said Paul Kitson, partner at consultancy PwC.
The higher limits bring a whole new level of people into the exercise
Bob Scott, LCP
From March 27 this year, trivial commutation rules allowed members with total pension savings of up to £30,000 to take their pension pot as a lump sum at age 60 or older. This was increased from £18,000.
People with individual pension pots of up to £10,000 can withdraw up to three of these as a lump sum, regardless of the size of the rest of their pension. The amount available for withdrawal was increased from £2,000.
“The higher limits bring a whole new level of people into the exercise,” said Bob Scott, partner at consultancy LCP. “I think these are going to be attractive.”
Experts said the increase of the small pot limit to £10,000 was likely to be more attractive to schemes, as judging single pots requires less assessment than judging whether individuals are eligible for the £30,000 commutation across all their schemes.
Eleanor Daplyn, partner at law firm Sackers, said: “Before, it was a lot of work for schemes but the smaller pots provision is much simpler.”
Bulk commutation exercises may be attractive to schemes as a way to lower liabilities and reduce administrative costs.
Jane Beverley, head of research at consultancy Punter Southall, said: “It’s not free but once you do it you don’t have to administer. There’s not much difference in cost between small and large pots.”
Despite the interest, some have raised doubts over how many extra scheme members would be eligible under the new rules. Malcolm Rochowski, corporate pensions actuary at consultancy Barnett Waddingham, said: “In theory there is an increased scope, but people falling into this bracket have mostly already taken a refund.”
Bulk commutation exercises may work well if carried out in conjunction with other exercises such as enhanced transfer value or pension increase exchanges, said Rochowski.
He added: “If you’re doing some kind of data exercise then that will probably involve writing to a lot of members anyway.”
