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Taking small pots as a lump sum

The government has announced an extension to the rules that allow small pension pots to be taken as a cash lump sum ('trivial commutation' rules) The rules will allow people with personal pension pots worth £2,000 or less to commute a maximum of two such pots in their lifetime.

Currently, people can take a pension pot as cash after they reach age 60 if the total value of all their pension savings is less than £18,000.

However, for members of an occupational pension scheme there is a secondary option which also allows them to take individual pots worth less than £2,000 as cash. The government plans to extend this option to personal pensions.

A joint HMRC and Treasury paper outlining draft legislation for the Finance Bill 2012, published today, says: "In response to the call for evidence paper on early access to pension savings, the government has been exploring ways of extending the rules on commutation of small pension pots to personal pensions."

Draft legislation was published on 6 December 2011 and it appears that it will have retrospective effect to that date.  It will allow individuals aged 60 or over with small personal pension pots of £2,000 or less to cash in a maximum of two such pots in their lifetime.  We will update our website and news service in due course once we have examined the draft legislation in detail.