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Budget 2014: 12 predictions

by Michelle McGagh on Mar 17, 2014 at 09:10

Small pension pots

Savers with small pension pots could be in for a windfall if the ‘trivial commutation’ rules are reformed. The rules allow a saver to take their pension as a tax-free lump sum if it is worth less than £2,000 or it their total pension pots added together are worth £18,000 or less.

Hargreaves Lansdown head of pension research Tom McPhail said the government could tweak the rules to allow pots worth more to be ‘commuted’ rather than forcing people to buy an annuity with the money.

He said a pension pot of £5,000 will buy an income of around £5 a week and a change in the rules could benefit 150,000 investors a year.

‘Reforming the small pots rule will help unlock improvements across the pension system,’ he said. ‘Small investors will get their money back; insurers will be able to sell better value annuities to large customers; it will help to minimise auto-enrolment opt outs and it’ll push cash into the economy.’

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