How to tap into your small pension pots

Retirement is not just a time for resting, it’s time to celebrate and enjoy rest of your life with the savings that we did and with the Pensions. The good news from new budget announcement 11 days ago puts an end to the impulse to turn a pension fund into small monthly payments during retirement. The government has finally relaxed the rules and has given some time for the pension providers to regulate their systems and practices.

The new arbitrary pension rules made people go irrational. But now it’s said that, there will be a short wait – a year, to be precise – before savers are finally able to dip into all of their pensions for however much they require, whenever they please.

Last Thursday a number of transitory actions were introduced, that will give pensions freedom to tens of thousands of people. So the people can go ahead with their plans who are preparing to get retired in coming one year. On a total, there are a number of 320,000 people for retirement.

People who are with small subsidiary pensions of less than £10,000 which were saved alongside a final salary pension will be benefitted predominantly with the new rules. The over-60s can now cash in up to three pensions of this size, taking a quarter of each tax-free.

The savers will have a great choice to use their reserved money in different ways, it facilitate some to clear mortgage debts or fund activities or gifts to children that were previously thought to be out of financial reach.

Various pension plans are planned specifically to be converted into an annuity when the saver retires. The Budget changes also represent a call to action for workers in their 50s. Though there are some older policies contain incentives such as guaranteed payout rates that turn each £100,000 into as much as £11,000 a year. However, the City regulator will this summer inductee an inquiry into old pension plans and other investments sold before the turn of the millennium, which could offer an escape route to those trapped in high-charging policies.

David Smith of investment firm Best invest said: “Don’t make a snap decision on the back of the Budget. To get the most from your savings while paying the least amount in, you’ll need to weigh up how much you will withdraw in retirement and when – then adjust your investment strategy accordingly.”

The Telegraph was flooded with lot of pension queries in the repercussion of the Budget. “We have endeavored to answer many of them, which will be published online tomorrow, with the aim of providing a reference for all readers”.

Letup for Today’s Pensioners

Several other measures, detailed below will give the current savers until the pension rules releasing next year.

People who have pension savings with less than £30,000 in total can take the entirety as cash, subject to income tax at marginal rates on three quarters of the money. Earlier the limit was £18,000.

According to Hargreaves Lansdown, “Many will still find that a small amount of final salary benefit is enough to breach the limits. Around £1,500 of annual income from one of these pensions, also known as “defined benefit” schemes, is worth £30,000 in the Government’s eyes”.

As per the budget announcement on Thursday, the Government increased the bounds so savers can take three pensions worth no more than £10,000 as cash, subject to tax on three quarters of the fund which is estimated that it would benefit 32,000 people out of it.

But earlier, in 2011 rules were introduced to liberate the smallest subsidiary pensions. They were restrictive, allowing only two pensions of no more than £2,000 to be taken as cash lump sums. Savers with slightly larger funds were asked to buy an annuity paying as little as £10 a week.

Another improvement is rules around “flexible drawdown”, where a pensioner will give access to their fund invested in the stock market or other assets and takes an income. Savers with £12,000 a year of secure pension income from other sources have entire freedom to access their money. However, this does incur charges, typically of around £300 or more, as pension providers are loath to spend money setting up a plan only for the money to disappear shortly afterwards.

An estimated 150,000 people have already started the process of buying an annuity. Last week, savers on the verge of retirement were hit by chaos across the pensions industry, which is scrambling to adjust to the radical shake-up announced in the Budget.

Plans for Next coming years 2015…

Most pension providers allow customers to use “capped drawdown” if they need income. Here the pension stays invested and income of around £7,000 can be taken from each £100,000 in a fund at age 65 and on Thursday this cap was raised to nearly £9,000 per £100,000 which is again subject to some charges. This is known to be one of the substitutes to annuities. But if you have the money to meet your expenses, then it’s better to leave your pension intact until 2015.

Billy Burrows of Annuity Line, the advisers, said: “At the moment the minimum term is three years. Insurers should offer a one-year option – this would bridge the gap until everyone had total flexibility. I think this is bound to happen soon”. However, some providers, such as LV=, Just Retirement and Aviva, provide “fixed-term” annuities.


Most of the company pension savings, in particular, are usually fed into “lifestyle” funds with approximately £165bn is in these funds, which are designed to reduce risk as a customer closes in on retirement by selling shares and buying bonds. So savers must recheck their investment plans, who are going to retire in a year or so.
However, because of the financial crisis the bond prices flew in the stir as investors sought safe havens. There are chances that savers of five, 10 or 15 years from retirement could suffer if markets swing back. Always money in bond funds is on a “cliff edge”.

Laith Khalaf, a pensions analyst at Hargreaves Lansdown, said: “Absolutely everyone who is invested in a default fund in their company pension scheme should dust it off and take a close look. The fund may no longer be fit for purpose now you don’t have to buy an annuity. This also applies to pension plans set up with previous employers.”