The government will increase the tax-free amount that can be taken out of small individual pension pots as a cash lump sum to £10,000, up from £2,000. This is regardless of overall total pension wealth of an individual, and cash can be accessed from age 60.
Chancellor George Osborne announced in the Budget 2014 that the government will also increase the number of small pension pots from which these lump sums can be taken, from two to three.
These changes will take effect from 27 March 2014.
Gail Philippart, principal at Mercer, is concerned that the changes will impact low earners. “It’s good to see some flexibility being brought to the fore,” she said.
“My concern would be that, if you’ve got low-paid employees who are paying very minimal pension contributions, potentially they will end up with no retirement savings, because they just start taking all their money as cash each time they leave their employer.
”That could be three jobs they have in their lives and it all adds up to what would be less than £30,000 all together.”
Further pension reforms and details announced in the Budget 2014 are set out in the government’s consultation, Freedom and choice in pensions.