New rule for cashing in small pension pots
Usually in order to cash in pension benefits, the value of all your pension pots added together (not including your State pension) must be less than £18,000. However, this means that if you have a larger pension, you may be left with another small benefit - a 'stranded pot' - which is too small to use to buy a pension.
In 2009, a new rule was introduced so that people with stranded pots from occupational schemes or public sector schemes with a value of less than £2,000 could cash them in.
From 6 April 2012, you may also be able to exchange your pension benefits for cash if you have a non-occupational or non-public sector pension such as a personal pension, SIPP, section 32 buyout, stakeholder plan of section 226 contract (retirement annuity contract).
The new rules allow you to cash in non-occupational pensions to be cashed in as a stranded pot, if you have other, larger pensions.
The rules are:
- You must have reached the age of 60;
- The payment does not exceed £2,000;
- It extinguishes all your rights under the arrangement; and
- You have not previously received more than one payment under one of these types of schemes. This excludes any separate 'stranded payments' commutation under an occupational or public sector scheme.
Click here to read more about the rules for cashing in small pensions.