HM Revenue and Customs (HMRC) have announced changes to pensions rules to allow those aged 60 or over to take a lump sum from personal pensions with a value of £2,000 or less.
Although pension plans are designed to provide an income during retirement, it is generally possible to take up to 25 per cent of the value of a pension fund as a tax-free lump sum, with the rest of the fund being used to provide a regular income. Since 2006, however, those whose total pension savings do not exceed one per cent of the Lifetime Allowance have had the option of taking a much larger percentage of the plan as a lump sum (an option known as ‘trivial commutation’). The Lifetime Allowance is currently £1.8 million, so this option is currently available to those with £18,000 or less in pension savings. The limit will remain at £18,000 in future, regardless of changes in the Lifetime Allowance.
HMRC have now announced that, from 6 April 2012, those aged 60 or over will be able to take personal pensions worth £2,000 or less as a lump sum, regardless of the value of their other pension savings. This move is intended to help those who have pension plans containing small amounts but who cannot make use of the trivial commutation rules, either because their total pension funds amount to more than £18,000 or because they have already made use of the rules in respect of another pension.
A maximum of two pension plans may be paid out as lump sums in this way. 25 per cent of each lump sum will be tax-free, with the remainder taxed at the taxpayer’s marginal rate of tax.
For advice on any pension matter, please contact Eoin Fowell on 01752 292350 or email@example.com