Q. What is a small pot (technically known as a small lump sum) payment and do all pension schemes offer this option?
A. Finance Act 2004, ie the legislation which applies to registered pension schemes, authorises specific types of lump sum payments that may be paid to members, one of which is a small lump sum. This payment type means that where a client has pension benefits that satisfy specific criteria, it may be possible to commute these for payment of a one-off (small) lump sum. There are different criteria depending on the type of scheme/ arrangement which holds the pension benefits. These conditions are covered in our article – small pots and defined benefit trivial commutations
Where a scheme offers this option, each payment cannot exceed £10,000 at the time it is paid.
Small pots from non-occupational pensions are limited to three in the client’s lifetime and each payment must extinguish pension rights held in the arrangement.
There is no limit on the number of small pots from occupational pension schemes providing each payment extinguishes benefits held in the paying scheme.
It is not mandatory that any scheme offers this option. You should check the scheme rules.