Conversion of small pension

Cretaphile

I am retired with 3 small occupational pensions. The provider of the smallest of these pensions has written to suggest I might be eligible to convert this small pension to a one-off lump sum. However, the HMRC rules seem crazy!! (I understand that tax would be payable and this is not the issue.)

If the combined pension pot ofall the 3 occupational pensions (including any lump sum I might have taken) equate to more than £30,000, I cannot convert this small pension to a lump sum. [A £30,000 pot would probably provide something in the region of £140 pcm - hardly substantial!]

Can someone please explain the logic to me!

It appears that if I have very low occupational pension provision I can have the small pension converted but if I have reasonable occupational pension provision, I can't!! This doesn't make sense to me! Translated:

- if I have a reasonable pension and can afford therefore to convert the small one to take a bit of cash without the loss of the small monthly income from this pension affecting my financial situation - I am not allowed to do it.

If, on the other hand, I don't actually have much pension and converting the small pension for cash would be likely to have a somewhat greater impact on my financial situation, I am permitted to do it.

Please, someone, explain the logic of this to me?? Thanks!

(Any state pension is ignored in this situation.)

dunstonh

If the combined pension pot ofall the 3 occupational pensions (including any lump sum I might have taken) equate to more than £30,000,

You mention pot which suggests money purchase. If so, then then £30k rule doesnt apply. Can you confirm it is money purchase or defined benefit?

Cretaphile

Thanks for your reply - the procedure is apparently called trivial commutation...

All 3 pensions are defined benefit (final salary). The "pot" I referred to is the figure calculated as per the example given for the dates which apply to me, i.e. for each pension I receive, the gross annual pension as at 5 April 2006 is multiplied by 20 (HMRC conversion rates). Any tax-free cash taken is added on to that figure. If the sum of these calculations exceeds £30,000 then I cannot convert the pension to cash! I just don't understand why!