Welcome for measures to allow small pensions to be cashed in

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Government plans which would allow thousands of people aged 60 or over to cash in small pension pots were welcomed this week.

Regulations will be introduced to enable people to access savings held in small personal pension schemes of £2,000 or less, by way of lump sum payment rather than having to buy an income with it.

The changes will affect members of registered pension schemes aged 60 or over and pension savers will have the new flexibility from April next year.

HM Revenue and Customs said there are around 25,000 people aged 60 and over who have total pension wealth of more than £18,000 with at least one personal pension of less than £2,000 that is not yet in drawdown.

Tom McPhail, head of pensions research at financial services company Hargreaves Lansdown, welcomed the measures, which are included in the draft Finance Bill.

He said: “This is a welcome development which will mean investors with very small pension pots will no longer have to buy an annuity and will instead be able to take their savings as a lump sum.

“It will also take some pressure off annuity providers, for whom these very small pots are unprofitable.”

He added: “A pot of £1,000 for example would provide a 65-year-old man with an income of around £5 a month.”

The Government had previously announced it was looking at ways for people to access small pensions savings.

The proposed revisions mean that from April 6, 2012 funds of £2,000 or less held in personal pension arrangements could be paid out as a lump sum to people aged 60 or over, regardless of the value of their total pension savings.

A person can have two lump sum payments in their lifetime.