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Trivial commutation tops the list of pensions queries

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Among the many changes that the industry is facing at the moment, it is not surprising to see such a strong trend for questions on trivial commutation. People want to get their money out if they can, and schemes are keen to slim their membership.

Ian Neale, Director at Aries, said: “Previously, members had been entitled to a taxed refund of their pension pot if it was below £2,000 (but could take this from only two personal pension arrangements). An issue had developed whereby many annuity providers would not accept a pot below £10,000 when creating a policy for members on retirement – meaning a large number of members were left with pots that were too large to commute back, but too small to get a competitive annuity. From 27 March this year however, the government has increased limits to £10,000 each from a maximum of three PP pots (and an unlimited number of other pensions).”

Neale added: “This has created a surprising loophole: where formerly the Treasury was so concerned about people deliberately setting up small PPs and then cashing out that the maximum available was £4,000, they are now allowing up to £30,000.  With the shift in attitudes towards pensions as long term savings plans these rules do something to encourage a greater level of saving from younger members towards old age, which arguably  is much more important than the risk of a small amount of tax loss from determined rule-benders. There are, as always, some nuances to the new legislation and as a result we have seen a substantial number of queries from schemes wanting to get this right; especially for example where there is a GMP involved.”

www.ariespensions.co.uk

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