1. Small Pension Cash In Rules Money Purchase

Published / Last Updated on 15/11/2023

Many people have small pension pots from current of previous private savings or workplace pension schemes.  There are rules that allow people to cash in their small investment linked, private and occupational money purchase pension pots under ‘small pots rules’ provided that you have reached the minimum early retirement age of 55 (goes up to age 57 in 2028).  When cashing in the pot, 25% will be tax free in UK and the 75% balance is taxable, likely to have those taxes withheld and you receive the net amount.

Personal pensions

  • The value of the pension policy must be £10,000 or less

  • The payment must use up all the members rights under that policy

  • Payments of this type can be made up to three times

  • If you have a pension scheme with mini policies or segments, sometimes known as clusters, you can cash in 3 of these e.g., a pension scheme worth £27,000, with 3 segments/clusters each worth £9,000, you could cash all three in under small pots rules.

Occupational Money Purchase pensions

  • The value of the policy must be £10,000 or less.

  • The payment must extinguish the member's rights under that policy.

  • There is no limit to the number of times this option can be used.

  • You must not be a controlling director (or connected to a controlling director) of the sponsoring employer of the pension scheme.

  • There have been no transfers out from the pension scheme within the last three years.

Lifetime allowance (the maximum you can accrue in pensions throughout your lifetime) - no requirement for you to have any lifetime allowance left and any lump sum paid out to you does not use up lifetime allowance.  Life time allowance technically disappears from April 2023 although tax free lumps sums are still capped at a maximum of 25% of £1,073,100.

Money purchase annual allowance (MPAA), where you and your employer cannot pay in anymore than £10,000 pa (from April 2023) into any other pension scheme after releasing some or all of the ‘taxable’ 75% element of a pension scheme is not triggered.

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