HMRC extends £2,000 relief to personal pensions

Draft legislation from the taxman is being welcomed by retirement advisors for extending the relief on cashing in small pensions valued up to £2,000 to personal pension schemes.

Joined by low-income support groups and the insurance industry, the advisors had been seeking HM Revenue & Customs to extend the relief since early last year.

Under the recently published draft, the £2,000 relief applies to personal pensions savings from April 2012, effectively bringing them in line with small occupational pensions.

For providers, the move will cut out the cost of administering small pension payments, and for the individual, it will offer more flexibility over how to use their money in retirement.

The Low Incomes Tax Reform Group added: “In late 2009 an additional relief was introduced to allow funds valued at up to £2,000 to be paid out in full, but for occupational schemes only. 

“This relief is in addition to the £18,000 limit, and can be paid no matter how much an individual may have in other pensions savings. The relief did not extend to personal pensions savings, which seemed an anomaly.”

Although small person pensions are now “on the same footing” as occupational schemes, the group warned that HMRC’s proposals include a limit on such payments that a person can make over their lifetime.

“There are still a number of areas in which the taxation treatment of small pension funds is not consistent with those for larger pensions,” the LITRG said, despite embracing the draft legislation as a “move in the right direction.”