The long awaited commutation regulations have finally been issued despite HMRC announcing in March that they would not come out until autumn.
Under current regulations members between 60 and 75 are able to take a lump sum rather than a very small pension if the values of all benefits they have under all registered pension schemes when totalled are below 1% of the lifetime allowance. A quarter of this lump sum is tax free with the remainder being taxed as income.
The new rules allow individual pension pots to be taken as a lump sum if the value of the benefits is below £2,000 without taking into account any other pension benefits.
It is disappointing that the regulations only apply to occupational pension schemes and not to personal pensions or stakeholder pensions despite recent progress towards a more consistent approach as a result of the pension simplification legislation.
It is a welcome change for those holding very small benefits within occupational schemes and should greatly simplify scheme administration and hopefully reduce costs however if the regulations had extended to personal and stakeholder pensions it would undoubtedly have created greater simplicity as well as creating a more level playing field.