Government allows small pensions to be taken as lump sum

7 December 2011

Savers aged 60 and over with less than £2,000 in a personal pension pot will be able to take their whole pension as a lump sum, the government has confirmed in the draft Finance Bill.

From 6 April 2012, a personal pension of £2,000 or less can be paid out as a one-off lump sum, irrespective of an individual's total pension savings.

Currently, those aged 60 or over are only allowed to take small personal pensions as a lump sum on the grounds of triviality if the total value of all their pensions amounts to less than £18,000.

Savers aged 60 or over are currently already allowed to take funds of less than £2,000 held in occupational pension schemes. However, an individual can only receive two of these lump sum payments during their lifetime.


HMRC expects the change to personal pension pots to affect around 25,000 people aged 60 and above who have an individual pension worth less than £2,000.

It means that pension savers with small personal pensions won’t be forced to buy an annuity, many of which are unprofitable as the amount is too small.

Tom McPhail, head of pensions research at Hargreaves Lansdown, estimates that a pension pot of £1,000 would provide a 65-year old man with an income of around £5 a month.

McPhail adds: "After its recent wobble on auto-enrolment, it is good to see that the government is still pressing ahead with its agenda of simplifying and improving the pensions landscape."

This article was written for our sister website Money Observer


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