Budget help for those with smaller pension pots?
In Budget week there’s always speculation about what will be contained within the little red box. A number of things are being bandied about, but as ever we will have to wait until Wednesday to find out for sure.
However, one thing that could have a massive impact on people for years to come could be a change to the rules regarding private pensions. Coming on the back of an ever-lengthening working life,as the state retirement age increases more and more rapidly, something to help out those without million pound pension pots, can only be welcomed.
Campaigners have been lobbying the Government on behalf of those holding smaller pension pots of less than £15,000. Back in the day, when people had a job for life (and most likely a final salary pension), this was a rarer occurrence. However, nowadays people tend to change jobs more frequently, giving rise to the potential for a number of smaller pots with different employers.
The problem with small pots is that they are still subject to the same rules on buying an annuity as other, larger pots, but much more difficult to obtain- most providers aren’t interested in small change, the rates are proportionately lower and pensioners would have to pay duplicate annuity fees and charges on each small pot. By way of an example, a 65 year old with a £10,000 pot might be able to buy an annuity of £7.50 a week.
Now, it might be possible for these smaller pots to be combined into another pension vehicle, for example a SIPP (Self Invested Personal Pension), and possibly raise a larger nest-egg with better purchasing power but what if they can’t? Current rules allow pensioners to withdraw the full amount as a lump sum only where the total of all pots comes to £18,000 or less.
But new rules that are rumoured to be included in this week’s Budget might solve the problem. Sources suggest that the rules will be relaxed to allow pots of up to £15,000 to be released as lump sums- and allow people to , perhaps, pay more than £7.50 a week off their mortgage. Clearly, full details will need to be scrutinised, but this move could immediately help up to 150,000 people a year, according to Daily Mail figures.