UK - The government has today published regulations allowing pension scheme members to commute occupational pension funds of less than £2,000 (€2,233), even if they have larger pension savings elsewhere.

In the explanatory note to the regulations, which come into force on 1 June 2009, the government claimed the changes to the trivial commutation rules, originally announced in the 2008 Budget, are designed to prevent occupational schemes from "having to pay pensions that would be uneconomic for them to administer and of little real value to the member". (See earlier IPE article: UK to allow lower pensions commutation)

Under the changes, members of occupational pension schemes aged between 60 and 75 will be able to take pension pots valued at less than £2,000 as a lump sum from 1 December 2009, even if they have other pension savings that exceed the current trivial commutation limit of 1% of the lifetime allowance.

The trivial commutation limit was increased under 'pensions simplification' in April 2006 to equal 1% of the lifetime allowance - currently £17,500 - but the limit applied to the total of all the benefits from all their pension schemes, so they could have one scheme with just £1,000 and another with £20,000 but they would be unable to commute the smaller pot as the aggregate exceeds the limit.

However, Standard Life has claimed that although the extension of the rules benefits people with very small 'stranded' pension pots, because the regulations only apply to occupational schemes and not personal or stakeholder pensions - over concerns about possible abuse of the system - this is making the pensions system more complicated.

Andrew Tully, senior pensions policy manager at Standard Life, said: "This change is beneficial for people who hold very small benefits within an occupational pension scheme. But it is very disappointing that only three years after pensions simplification, the government is introducing new differences between occupational and personal pensions."

Instead, the insurer is calling for all pensions legislation to be the same across all pension contracts, as Tully claimed: "This would cut red tape significantly and make pensions cheaper and easier for people to understand. These new rules create an uneven playing field, make pensions more complicated and appear completely illogical."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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