Written question asked by Rachel Reeves (Labour) on Thursday, 16 December 2010, in the House of Commons. It was due for an answer on Tuesday, 21 December 2010. It was answered by Steve Webb (Liberal Democrat) on Tuesday, 21 December 2010 on behalf of the Department for Work and Pensions.

Annuitising Sums

Question: To ask the Secretary of State for Work and Pensions if he will bring forward proposals to (a) facilitate and (b) reduce the cost of annuitising sums of less than £5,000.

Answer: There are already rules in the pensions tax system designed to help those with a low level of overall pension savings, or with individual, small occupational pension pots.The trivial commutation rule allow individuals who are 60 or over with total pension savings below £18,000 to withdraw all their savings as a lump sum. The first 25% of this lump sum is tax-free, with the remainder taxable as income. In addition, certain small occupational pension pots of less than £2,000 can also be taken as a lump sum, even where an individual has savings in excess of the aggregate limit.Some people may already be able to amalgamate their savings, or may be offered an annuity by their pension provider. Evidence shows that an annuity can be purchased with pension pots of as little as £5,000.The Government recognise that some people with pots of less that £5,000 may have difficulties when it comes to annuitisation. DWP is considering the long-term consequences of automatic-enrolment to better understand the implications for employers and schemes in administering small pots and also to help individuals maximise their savings.DWP is working with HMT, HMRC, FSA and TPR to share knowledge. We will consider whether any action may be needed to address issues around small pots.

Secondary information