Where you have small pension pots of less than £10,000 each, you may be able to take them as a cash lump sum, rather than converting to income in certain circumstances!
As with anything pensions, there are strict rules on the number of pensions you can encash (or commute as we call it) under these rules being:
It doesn’t matter how much you may have in other pensions, the rules apply to the individual pension plans being commuted so if you had for example £200,000 in pension 1 and £8,000 in pension 2 – you could then encash the smaller pot under the “small pot payment” rules!
However, some further rules also need to be met:
Taxation of small pots
This will depend on whether your pensions are what we call “uncrystallised” or “crystallised”!
Uncrystallised – is usually paid in the normal manner, meaning 25% (or one-quarter) is tax-free with the remaining taxable as income.
Crystallised – tax is usually paid on the entire amount
Other points to consider
Still confused? Contact your local experts for advice on all things pensions and guarantee your very own Financial Fortress!
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