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Retirement

New rules to help savers with small pension pots expected

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
07/03/2014

The government could relax rules on cashing in small pension pots in this year’s Budget, providing a boost to thousands of retirees.

Under current rules, people with savings of £2,000 or less can take their entire pension as a lump sum at retirement, rather than buying an annuity.

However, Tom McPhail, head of pensions research at Hargreaves Lansdown, expects the government to increase this limit to £10,000 or £15,000.

He said: “It is madness that small investors are being forced to buy poor value annuities.

“Reforming the small pots rule will help to unlock improvements right across the pension system. Small investors will get their money back; insurers will be able to sell better value annuities to large customers and it will help to minimise auto-enrolment opt-outs”.

A £10,000 limit would benefit around 100,000 investors every year, while a £15,000 limit would benefit 150,000 investors, according to McPhail.

Around 30% of annuity sales every year are for £30,000 or less.

A recent review of the annuity market by the Financial Conduct Authority found it was hard for investors with such small pots to get value for money.

The Chancellor will deliver his Budget on 19th March.

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