Hmrc Changes - A Tidy Annuities Boost For The Over 60s

Those nearing retirement could find themselves receiving a nice tidy sum when converting their pension into annuities. HM Revenue and Customs, the UK government department which writes the legislation regarding tax on pensions and annuities, has announced changes meaning that individuals aged 60 plus can access small personal pension pots of up to £2,000 as a lump sum.

'Trivial commutation' - as it's known in HMRC jargon - or the conversion of small pension pots into cash has always been allowed, providing that the persons total pension sum is below £18,000. Any sum below this can be taken as cash lump sum on retirement. However, for those who have an excess of £18,000 in total pensions and who have additional personal pension pots of less than £2000, this small pension pot must be converted into an annuities which may only give a paltry return of a few pounds a week.

HMRC estimates that the changes could effect up to 25,000 individuals - the number of over 60 years olds who have a pension wealth exceeding £18,0000 and at least one additional pension of £2,000 or less that has not been converted into annuities or in 'drawdown' as its technically known.

Coming into effect from 6 April 2012, it will mostly effect those will have been working at a company for a short period of time but still contributed to a personal pension scheme. In particular, those who may have been job-hopping at the start of their career and may have been tempted by the 90s boom of companies selling personal pensions.

In line with the current regulations on annuitites, HMRC will allow 25% of the money to be taken free of tax, with the rest taxed at the individual's marginal rate of income. This is the case with pensions of any amount which are converted into annuities - the most common method of transferring a pension into a regular income in retirement.

The measure will be been brought in to support the Government's proposals for a fair pension system and to help individuals with smaller pension funds from non-occupational schemes.

Tom McPhail of Hargreaves Lansdown said: "This is a welcome development, which will mean investors with very small pension pots will no longer have to buy annuities and will instead be able to take their savings as a lump sum. It will also take some pressure off annuities providers, for whom these very small pots are unprofitable."

If you are confused about the proposed changes, want to claim your individual personal pension of £2,000 as a lump sum, or simply discuss the annuities options available, it may be best to seek the help of an annuities specialist.

By: bluespeckmedia.

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John T Hughes writes for Annuitites Rates, a site that connects consumers to annuities advice they can trust.