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Government facing calls for trivial commutation reform

The Government is facing growing calls to relax rules around the trivial commutation of pension pots worth less than £5,000.

Earlier this month, shadow pensions minister Rachel Reeves issued a written question to pensions minister Steve Webb asking whether he would bring forward proposals to facilitate and reduce the cost of annuitising sums of less than £5,000.

In his written response, Webb said: “The Government recognise that some people with pots of less that £5,000 may have difficulties when it comes to annuitisation. DWP is considering the long-term consequences of automatic-enrolment to better understand the implications for employers and schemes in administering small pots and also to help individuals maximise their savings.

“DWP is working with HMT, HMRC, FSA and TPR to share knowledge. We will consider whether any action may be needed to address issues around small pots.”

The trivial commutation limit for occupational pension schemes is currently £18,000. Barnett Waddingham consultant Malcolm McLean says people with personal pension savings of less than £5,000 whose occupational pension pot exceeds £18,000 are unable to trivially commute their additional savings. He says insurers refuse to offer an annuity on a pot below £5,000, effectively leaving the funds stuck in “limbo”.

He says: “This really is a problem which should have been addressed a long time ago. The Government has put a lot of effort into constraining tax reliefs for high earners. They should now look to let go a bit and do what is necessary for small pension earners.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. David Trenner - Intelligent Pensions 29th December 2010 at 2:53 pm

    I have some sympathy with the government here. If they say that any fund is trivial and can be commuted for cash if it is below £5k, how long will it be before someone writes in the Telegraph about how to take individual segments from a PP, each of which is below £5k?

    If you can explain how to avoid that sort of scam, then I am all for changing the terms for trivial commutation.

  2. Well; thought out ! 30th December 2010 at 9:54 am

    Quote: Earlier this month, shadow pensions minister Rachel Reeves issued a written question to pensions minister Steve Webb asking whether he would bring forward proposals to facilitate and reduce the cost of annuitising sums of less than £5,000. End quote

    Hang on, the problem started at A day when Rachel Reeves Labour party introduced their draconian and over complicated rule trains. They didn’t solve it for PPs when the rules were changed for NEST either, because apparently of Treasury concerns of larger PP pots being broken up into smaller ones.

    It would be great if the current government could go back to pre-A day rules on Triviality, given this government are trying hard to tip the pensions world the right way up again after the mess they inherited from Rachel Reeves Labour party…. in the meantime perhaps Rachel Reeves Milliband party can now find a way of returning to people’s pensions all the money Gordon Brown took away when he came into power….that might solve her Triviliaity pot problem for a lot more people ?!

  3. Oooom…. how about transferring said small personal pension fund into the post 18K DC occupational pension scheme, or vice versa for leavers? Any scheme rules could be amended if required, to accomodate such transfers in the circumstances described.

    DB schemes could have an AVC scheme to accept transfers in, in these circumstances.

  4. Remember when Scottish Amicable developed their segmented pension policy?. This would be a good reason to re-susitate it – which would lead to the next scandal. The only time there should be a problem with small pots is when it occurs alongside a defined benefit pension, and that could be treated simply.
    If people merely take their personal pensions in tranches they should ensure the problem cannot happen. Take advice.
    Whoops. Sorry. Forgot that this Government is ensuring such facilities are beyond the means of people in this category.
    I suppose the only reasoned response then is “Tough, you shouldn’t have bothered saving”.

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