Decisive action is needed to take trustees out of the "limbo" they are currently caught in over the new trivial commutation rules, according to First Actuarial.

Alan Smith, director at the actuarial consultancy, told Pensions Age that the new 'simplified' rules introduced after A-Day, which mean schemes must set up "tiny pensions" to pay small amounts out over a pensioner's lifetime - rather than the old idea of small pensions being eligible for payment in one lump sum, are harming funds.

Smith said the necessity of setting up schemes to administer these small pensions is adding unnecessary costs and complexity to the running of a scheme. "This goes against the government's grain of trying to strip unnecessary costs away," Smith explained. "They made a mistake. This is an example of where they put simplification in without thinking it through. It was done in haste and they didn't take notice of the comments the industry was giving them."

The only argument against reinstating the trivial commutation, Smith said, is tax avoidance. However, Smith is sure that this will actually benefit the taxpayer, because they would get the tax upfront.

"It was working perfectly well before they complicated things - they are procrastinating," he said.

Draft proposals over the issue were published in May 2008, which would be followed up by final regulations before the end of 2008, but the industry is yet to see anything set in stone. Smith said he hopes the date for a decision will now be April 2009.

- Pensions Age January 2009

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