Who should read this page?
This page is intended for policyholders who have not yet started to receive their pension benefits.
It may also be helpful for dependants who have been offered the option of giving up a dependant's pension for a one off lump sum following the death of a policyholder.
If you are considering your options and the value of your pension benefits is below £30,000, we will include an option of taking all of your pension benefits as a one-off lump sum in your option pack. Although we may include this option, there are restrictions on whether you will be eligible option. These are explained below.
If you are eligible and interested in this option, we encourage you to consider the implications of exchanging regular pension payments payable for the rest of your life does a one-off lump sum. Please see below for more information.
Types of one off lump-sums
There are two types of one-off lump sums:
Small pot lump sum
You can only exchange your pension benefits for a small pot lump sum if you can confirm you are not a controlling director* of a sponsoring employer of your previous scheme or any related scheme of the same employer and are not connected** to such a person.
*As defined in section 273(9) of the Finance Act 2004
**As defined in section 993 of the Income Tax Act 2007
Trivial commutation lump sum
If the total value of all your pension benefits from all sources is less than £30,000, you have a one-off 12-month period known as the ‘commutation period’ to commute trivial funds across all your pension arrangements.
Your commutation period starts on the day the first trivial commutation lump sum is paid and ends 12 months after that day. Any commuted lump sum paid after the 12-month period has ended will not qualify as a trivial commutation lump sum and may be subject to penal tax charges.
Things to consider
If you think you are interested in taking all your pension benefits as a one-off lump sum and you think you are eligible, you should consider the implications of giving up regular pension payments carefully.
We have included some points below that you may want to take into account when considering whether to take all of your benefits from your Rothesay policy as a one-off lump sum. Depending on your personal and financial circumstances there may be additional points that you should also consider.
You may want to appoint a financial adviser to help you. If you do not have a financial adviser, you can find one clicking the link below. MoneyHelper's 'Find a retirement adviser' page will open in a separate window.
Think about the following:
In some cases, if you choose to take all of your benefits as a one-off lump sum, you will also be giving up a dependant’s pension payable on your death. The lump sum offered allows for the value of your pension and, if applicable, the pension that would be paid to your spouse/civil partner should you die before them. It is important that you both consider whether a regular income is needed after your death.
If the pension payments from your policy increases each year, you will need to consider whether or not taking all of your benefits as a one-off lump sum would help you to mitigate the effect of future increases in the cost of living.
This will depend on how long you and, where applicable, your spouse/civil partner expect to live. We base our calculations on an average policyholder. However, there are a number of factors that affect how long people live and it varies significantly from person to person. When considering the offer you should bear in mind that people often under estimate how long they will live.
You may find the life expectancy calculator from the Office for National Statistics’ website helpful. To access the calculator click on the link below. The calculator will open in a new window.
If your pension benefits are not yet in payment and the lump sum is not in relation to a dependant's pension, the first 25% of the lump sum is tax-free and the rest is taxable at your marginal rate.
The lump sum will not affect your entitlement to the State Pension. However, it is possible that payment of the lump sum could affect other State and/or any means-tested benefits. Please see the section on State benefits and/or means-tested benefits below for more information.
If you are considering investing a lump sum please be aware that:
Tax implications
If you choose to take the trivial commutation or small pot lump sum option when you take your benefits, the first 25% will be tax-free and the rest will be taxable as income taxed at your marginal rate.*
For some people, choosing to take a lump sum instead of regular pension payments will put them into a higher income tax bracket. than they would have been choosing one of the other options. We recommend that you seek advice from Tax Help, HM Revenue & Customs (HMRC) or your own tax adviser if you are unsure of the tax implications for your personal circumstances. Contact details for Tax Help and HMRC are provided at the bottom of this webpage.
*Your marginal tax rate
Your marginal tax rate is the percentage of each additional £1 of income you earn that you pay as tax. So, if earning that extra £1 takes you into a higher tax bracket you will pay tax at a higher percentage e.g., if it takes you into the 40% tax bracket, your marginal rate for that additional £1 will be 40%.
If you exchange pension payments for a lump sum, we will deduct any income tax due from your lump sum and pay it to HMRC on your behalf and pay the remainder to you.
You will receive a P45 form in respect of the one-off lump sum we pay you. Your P45 form will confirm the amount of tax that we have paid on your behalf.
It is possible that once all of your income for the tax year from all sources is taken into account, the tax we deduct from your lump sum might not be the right amount. If this is the case, you will need to either claim back any overpayment from HMRC or pay any additional income tax that is due.
After the next 5 April, HMRC will check to see if you have paid the correct amount of tax. If you have paid too much or too little tax they will contact you. However, if you think you have paid too much tax, you can ask HMRC for a tax refund straight away – you do not have to wait until 5 April.
To claim a refund you can complete form P53 online without needing to contact HMRC directly. You can access the online form from the government's website by clicking the link below. GOV.UK will open in a new window.
Alternatively, if you prefer to complete a paper form, call the Tax Helpline on 0300 200 3300 and ask for form P53. It helps if you have your National Insurance number to hand when you call.
State and/or any means-tested benefit implications
If you choose to take all of your pension benefits from your policy as a one-off lump sum, your capital will increase and your income will be lower than if you had chosen to an option with pension payments. This may affect State and/or any means-tested benefits, such as housing benefit, council tax reductions and funding towards personal care.
Some means-testing is based on your income (including pension payments such as those from your policy with Rothesay) and some on your capital (your savings, investments and property). Different means-testing rules apply depending on whether you are under or over the State Pension age.
Information from GOV.UK
You can find out specific information relevant to your own circumstances by clicking the link below. The 'Check benefits and financial support you can get' section of GOV.UK will open in a new window.
Check benefits and financial support
Further help
If you have any questions about how the offer would affect your State and/or any means-tested benefits, please call us on 0330 134 4680 if calling from the UK, or +44 (0)114 450 1211 if calling from overseas.
How the lump sum is calculated
The value of your lump sum is calculated as the current value of the payments that we expect to make to an average policyholder of your age and, where applicable, your spouse/civil partner’s age, over your lifetime(s).
For single life policies (those which do not pay a spouse/civil partner’s pension on your death)
If you live for longer than an average policyholder, the value of your total pension payments over your lifetime would be more than the lump sum.
For joint life policies (those which pay a spouse/ civil partner’s pension on your death)
Whether the value of the pension payments (yours and those paid to your spouse/civil partner on your death) would be more or less than the lump sum depends how long you both live compared to an average person.
For example:
Assumptions used in our calculations
Our calculations are based on assumptions for a range of relevant economic factors, such as expected returns on assets and expected inflation. These assumptions are, in turn, based on market conditions at the time of the calculation.
Our calculations are also based on our assumptions for life expectancy. When considering how long policyholders and, if applicable, their spouse/civil partner is likely to live we used our best estimate assumptions calculated on a unisex basis. We also allow for the fact that generally people who expect to live for a shorter period of time are more likely to choose the lump sum over their regular pension payments.
We also allow for the fact that we are guaranteeing the value of your lump sum over a period of time regardless of market movements.
Please note, it is highly unlikely that you would be able to use the one-off lump sum to replace regular pension payments with equivalent income by buying an annuity from another provider. One of the main reasons for this is the price of a new annuity includes an allowance for the set-up costs and expenses, as well as the new provider’s profits.
Who you should contact if you have any questions
We are here to help. You can contact us using the contact details that you usually use for your policy. If you do not have these to hand you can use the search function below.
The following organisations may also be able to provide information that will help you with your decision about whether to exchange regular pension payments for life for a one-off lump sum.
Please note, each of the links below will open in a new window.
Designed to make your money and pension choices clear. It is backed by the government and free to use.
0800 138 7777
Helps people resolve their legal, money and other problems by providing free information and advice. Please see your local phone directory for details of your nearest CAB office.
Responsible for the collection of most taxes within the UK. They operate a pensions helpline that can give advice and support on any matters relating to tax.
0300 200 3300 (UK)
+44 (0)135 535 9022 (Overseas)
Tax Help is a service from the charity Tax Volunteers, funded by HMRC, the tax profession and a number of insurance companies, including Rothesay. It provides free, independent and expert help and advice regarding tax.
0333 207 5652
Tax Help's page for Rothesay policyholders
If you do not have our contact details to hand, please enter the previous scheme or insurer for the policy in the search bar below to show the contact details you need.
Examples of previous schemes include: GEC 1972 Pension Plan (telent), Lehman Brothers Pension Scheme, The ASDA Group Pension Scheme.
Examples of previous insurers include: AEGON/Scottish Equitable, Prudential/PAC, Zurich/Allied Dunbar/Eagle Star.
Please use this form for general enquiries regarding individual policies. If you are notifying us of a death please go to our death notification page.