The government is to ease the rules on trivial commutation so that pension savings below £2,000 in occupational schemes can be converted into cash.
The new measures mean a one-off cash sum can now be paid as an alternative to a regular pension without the scheme member having to obtain details of pension entitlements held elsewhere. This is irrespective of any benefits a member may have in another scheme.
Previously, there was a significant cost to the commutation process, which will now be removed for any occupational pension with a value below £2,000.
Joanne Segars, chief executive of the National Association of Pension Trusts (NAPF), said: “While we would have liked the government to allow a higher limit than £2,000, this measure will still be enormously popular with administrators and trustees. Schemes will benefit from not only the simplified processing of what will now be a stand-alone exercise, but also the saving of disproportionate costs involved in paying very small pensions.”
Jane Beverley, head of research at Punter Southall, said: “This is excellent news. For nearly two years, members have found themselves caught with small pension pots that have to be paid out as tiny pensions because the member has benefits elsewhere. Such pensions are expensive to administer, and may be hard to obtain or only obtainable at an uneconomic cost. I am delighted HMRC has seen the force of the case presented by the pensions industry during the consultation process.”