Webb puts pension consolidation in the spotlight

Speaking at the Liberal Democrat Conference today, pensions minister Steve Webb announced that proposals will be put together to reform the rules surrounding small pension pots.

Webb highlighted the difficulties associated with buying an annuity for an individual at retirement who has built up multiple small pension pots in different jobs. Current rules make it difficult to consolidate these multiple pots, and few UK insurance companies will sell annuities for less than £5,000. Webb confirmed that the Department for Work and Pensions aims to remove the barriers to transferring schemes into one 'big fat pot'.

Current rules class pension funds which are between £2,000 and £18,000 in value as 'trivial'. This means that the money can be 'commuted' or withdrawn when the individual is between 60 and 75, usually 25% as a tax-free lump sum and the rest as taxed income. Occupational pension pots under £2,000 can be withdrawn as a lump sum.

Webb indicated that a consultation on trivial commutation would take place later in the Autumn.

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SOURCE: http://www.professionalpensions.com/professional-pensions/news/2110450/lib-dem-conference-2011-webb-operation-fat-pension-pot