The Government is facing growing calls to reform pensions trivial commutation rules ahead of the Budget.
Current rules allow people over 60 years old with total defined-benefit and defined-contribution pension savings worth less than £18,000 to take their entire pot as cash.
In addition, savers can take up to two pension pots worth £2,000 or less as cash, even if the total value of their savings exceeds the £18,000 limit.
The Association of British Insurers is calling on the Government to simplify trivial commutation rules ahead of the Budget on 19 March.
ABI director general Otto Thoresen says: “If people have small pension pots, the issue isn’t just about choice of annuity but whether they should annuitise at all.
“The industry is urging the Government to simplify and relax the rules, which state how much money people can take in cash when they come to retire with a small savings pot.”
Aviva head of policy John Lawson says: “The problem at the moment is you have to include DB benefits and DC benefits when calculating the overall limit of £18,000.
“You could split the trivial commutation rules between DB and DC and give each its own limit. That would mean if you only have a few small DC pots that are collectively worth less than £10,000, you can commute those irrespective of the value of your DB benefits.”
Investment Sense marketing manager Phillip Bray says: “Trivial commutation needs to be reformed and simplified urgently. Forcing someone with a DC pot worth £2,500 to annuitise is ludicrous.”