Pensions - Triviality Rules
Normally, you are allowed to take a maximum of 25% of your pension fund as a tax-free lump sum, with the remaining 75% being used to purchase an annuity,
However, if you are aged between 60 and 75, and the total value of all of your pension funds is less than 1% of the lifetime allowance at the time, you can take all of your pension fund(s) as a lump sum.
(For example, the lifetime allowance in 2010/2011 will be £1,800,000 so the triviality limit would, in that tax-year, be £18,000.)
In determining whether you are below the 1% limit, all pensions must be included, such as the value of any pensions in payment, as well as any pensions you have not yet taken the benefits from.
However, you do not take into account any state pension benefits, (the basic state pension, the state earnings related pension, or the state second pension) in calculating if you will be within the 1% limit.
Although you may take the whole fund as a lump sum, only 25% of the whole fund would be free of tax. The remaining 75% would be taxed as earned income at the highest rate at which you pay income tax in the year in which you take the triviality money.
See The Pensions Advisory Service for more information on triviality..
