Many people have small, guaranteed income pensions from defined benefit or salary related pensions schemes. There are rules that allow people to commute i.e., convert to cash in their small, defined benefit pension under ‘triviality rules’ provided that you have reached the minimum early retirement age of 55 (goes up to age 57 in 2028). When the ‘trivial’ pension is commuted to be cashed in, 25% will be tax free in UK and the 75% balance is taxable with usually those taxes withheld and you receive the net amount.
Lifetime allowance (the maximum you can accrue in pensions throughout your lifetime) – you must have some remaining lifetime allowance to able to use Triviality commutation, but any lump sum paid out to you does not use up that same lifetime allowance. Life time allowance technically disappears from April 2023 although tax free lumps sums are still capped at a maximum of 25% of £1,073,100.
Money purchase annual allowance (MPAA), where you and your employer cannot pay in anymore than £10,000 pa (from April 2023) into any other pension scheme after releasing some or all of the ‘taxable’ 75% element of any other pension scheme is not triggered.