The days of people being forced to buy an Annuity with a small pension fund could be over if new proposals from the government become law.
The draft Finance Bill 2012 contains proposals, which if passed, will allow people over the age of 60 to cash in up to two personal pension plans, with values of less than £2,000 each, regardless of whether they have other pension savings.
Up to 25% of the pension pot will be available as a tax free lump sum, with the balance being added to the individual’s income and potentially being subject to income tax.
Currently it is only possible to commute small pensions into a lump sum if an individuals’ entire pension savings are worth less than £18,000, which can lead to relatively small funds being forced to purchase an Annuity.
Any pension Annuity calculator will show that there are only a limited number of Annuity providers willing to consider small funds, which in turn reduces their competitiveness of rates available.
The proposals are therefore good news for those people with small pension funds, perhaps running alongside a larger scheme, which they would have previously been unable to access as a lump sum.
The government’s plans will bring Personal Pension Plans into line with Occupational Pensions which already allow them to commute their benefits if the fund is worth less than £2,000.
Andrew Tully, pensions technical director at MGM Advantage, said: “Forcing people with very small pension pots to turn them into a lifetime retirement income didn’t make sense for consumers or providers, so this is a step in the right direction.”