Small pots lump sum meaning

A small pots lump sum is a cashing‑out of the whole of a small defined contribution pension pot instead of buying an annuity or entering drawdown. In UK pensions practice it is commonly used as a descriptive term; in HMRC legislation (Finance Act 2004 and the Registered Pension Schemes (Authorised Payments) Regulations 2009) it is an authorised “small lump sum”. Key features: - Each pot must not exceed £10,000 and the payment must extinguish all rights under that arrangement. - It can be paid from personal (non‑occupational) and occupational schemes, subject to scheme rules and administrator processes. - A member must have reached normal minimum pension age (currently 55, rising to 57 from 6 April 2028) or meet the ill‑health conditions. - Tax is normally 25% tax‑free and 75% taxed as income under PAYE. - Taking a small pots lump sum does not in itself trigger the money purchase annual allowance. Limits: - Personal/non‑occupational pensions: up to three such payments in a member’s lifetime. - Occupational schemes: the “three schemes” limit does not apply to separate, unconnected occupational schemes. Ireland: The UK small pots regime does not apply. Irish practice uses different trivial commutation/encashment rules under Irish Revenue guidance, with different limits and conditions.