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Write to Pensions Doctor with your pension problem: pensionsdoctor@telegraph.co.uk. Columns are published weekly. Becky O’Connor is away.
Dear Charlene,
I was just reading this article and have a question, since I was not aware that legislation allowing these small pots to be cashed had been enacted.
I have a tiny private pension pot that pays £155 per year, about £3 a week. It is worth maybe £2,000.
It was from my last permanent job and was with Equitable Life, which went bust and was subsequently bought by Canada Life which still holds the policy.
I have asked them to close it and return the capital sum to me, less of course any fee. This they refuse to do. I am now over 80 so certainly old enough, but in your opinion under current legislation can they refuse to allow me to take it?
Yours,
– Maggie
Dear Maggie,
From what you’ve told me, I believe you’re receiving a regular annuity payment from Canada Life. Following the collapse of Equitable Life, Canada Life agreed to take on the bulk of pension annuities already in payment back in 2006 and the transfer was completed a year later.
Pension annuities are provided by insurance companies – your pension pot is used to buy a guaranteed income for life, with certain features bolted on to the payment (for example inflation protection) at outset.
It isn’t usually possible to cash in annuities that are already in payment. There is a risk any payment made when you surrender or assign a lifetime (pension) annuity would attract a heavy penalty (at least 55pc) as the rules would treat it as an “unauthorised payment”.
Where an annuity hasn’t been purchased, there is now the option for people to cash in smaller pension pots – with a limit for most small private pensions of £10,000, and the chance to take up to three pots this way. Before 2014, the limit was £2,000.
Some companies have previously offered to buy back small annuities in payment (worth less than £10,000 or in some cases £2,000), but under very specific circumstances. But nearly all the large insurers have said they cannot offer this due to the terms and conditions of the contracts or because the amount they could offer would present poor value.
There’s nothing in legislation to force them to do so and your pot might not qualify, but it might be worth asking Canada Life again for a full explanation in your case.
The idea of a secondary market for annuities – a place where annuities could be bought and sold – was previously floated by the government as a way of extending the “pension freedoms” reforms.
But although many firms came forward to say they would be willing to allow customers to sell their individual annuities in exchange for cash, the lack of purchasers would have created a very imbalanced market.
The Government feared that an ineffective market and lack of competition would lead to poor value for anyone looking to cash-in their annuity. The idea was ultimately scrapped in 2016.