Rumours have been circulating amongst the financial press today that the chancellor will make an announcement in the budget to increase the previous “small pots” limit of £2,000 to £10,000 or even £15,000!
The “small pots” legislation allows people to take the proceeds of their pension funds as a cash lump sum if the total value of any single plan is under £2000. This prevents people from having to purchase an annuity with such a small pension fund, which in todays’ market, would secure an income of only around £8 per month.
By taking the pension as a lump sum, you avoid the fees and charges usually associated with an annuity, which would be disproportionate for such a small fund.
If the rumours are to be believed, the small pots limit is to be increased to £10,000 or more. This would be great for people who have a single small pension fund, as an annuity rarely represents good value for people in this situation.
The risk is however, that people will be tempted to take multiple pension pots, all as a lump sum, and thus deprive themselves of a lifetime income.
It is easy to transfer pension pots from one provider to another and this may be the best option for those of us who have accumulated several smaller pensions over our lifetime.
By combining the value of your pension funds you will benefit from economies of scale when making a retirement income purchase and the fees involved might seem a bit more proportionate.
What represents the best option will depend very much on your individual circumstances, retirement goals and attitude to risk. Taking high quality advice is key at this “at retirement” stage where many life long, irreversible decisions will be taken.
If you would like assistance in managing your retirement income, please get in touch to arrange your discovery meeting, provided at our expense.
