Budget 2014: New rules for small pension pots
New rules for small pensions pots will deliver greater flexibility and choice in the way people take their retirement income.
In his 2014 Budget speech, George Osborne announced that from 27 March 2014, those holding small individual pension pots will be able to take up to £10,000, up from £2,000, as a lump sum regardless of total pension wealth.
In addition, the number of small pension pots that can be taken as lump sums will increase from two to three.
"Today's Budget announcement confirmed that consumers with pension pots of up to £10,000 are able to access their savings without having to buy an annuity,' says Adrian Walker, retirement planning manager at Skandia, part of Old Mutual Wealth.
"Our analysis of ABI data suggests that around 25 per cent of annuity sales are currently for pension pots of less than £10,000."
There will also be more flexibility for people with defined contribution pensions to access their savings.
The government has also revised the 'trivial commutation' rules that allow people with small pensions to take the whole lot as a single cash lump sum, raising the maximum total pension wealth from £18,000 to £30,000.
"Savers with pension pots of less than £30,000 can now take this out as cash, in what is a welcome lifeline for savers with small pension pots," says David Macmillan, managing director at life and pensions provider Aegon UK.
Some 150,000 pension holders are expected to benefit from the new rules. However, the changes may have significant implications for the sales of annuities - it is estimated that a quarter of annuity sales are under threat as a result of the changes.
This article was written for our sister website Money Observer
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.