If your total personal pension funds are valued at less than £ 18,000 you will be able to be take all of your pension as cash.
You must be over the age of 60
25% of the fund will be tax free and the balance will be taxed at the marginal rate. More than one policy can be commuted for cash providing that the total is below £ 18,000
For example an individual with a stakeholder pot of £18,000 could take £4,500 as a tax free cash sum and the balance will also be paid in cash, less basic rate tax (20%)providing another cash payment of £10,800.
It is important to remember that all pensions in payment must be taken into account when calculating the value of an pension. This means that in the example above, if the individual had a small pension in payment, this would have to be taken into payment and would take them over the limit.
There are different rules for occupational pensions whereby it is possible to take pension funds below £ 2,000 in cash even if you have other pension funds.
Contracting out for pension scheme was abolished from April 2012. This means that it is no longer necessary to purchase a seperate annuity for Protected Rights pension funds
Defined contribution schemes and some personal pensions that have contracted-out of the State earnings related pension scheme (SERPS) usually have a portion of the member’s fund known as protected rights.
At retirement this fund must purchase a protected rights annuities and these are calculated using unisex annuity rates. That is the same rates for both men and women.
Annuities purchased with a protected rights fund accrued before 6 April 1997 must provide a 50% spouse’s pension.
Annuities purchased from a protected rights fund accrued after 5 April 1997 are only required to provide a 50% spouse’s pension if the member is married when they retire. In both cases the Protected Rights annuity must be calculated using unisex annuity rates.
Following changes in the Pensions Act 2004, it is no longer mandatory to arrange a protected rights annuity with annual increases for pensions coming into payment after 6 April 2005.
Prior to these date, pre 5th April 1997 protected rights had to increase by the lesser of RPI and 3% p.a. and all benefits post 5th April 1997 had to increase by the lesser of RPI and 5% p.a. This means that protected rights annuities may be arranged with level payments.
Some schemes which contracted-out of SERPS before April 1997, must provide for a guaranteed minimum pension (GMP). The GMP is broadly the same pension as that which would have accrued under SERPS. In addition to the members pension, the annuity must provide a 50% spouse’s pension. The annuity purchased in respect of service after April 1988 must also escalate by at least the rate of inflation (up to a maximum of 3% per annum). From April 2005, GMP must increase by the Lesser of RPI and 2.5% p.a.