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New pension legislation impacting holders of small pot pensions



Jersey has recently introduced new pension legislation that became effective in January 2024.


This amendment has redefined the thresholds for the “trivial” and “small pot” pensions. 


The upper limit for a ‘small pot’ pension has been reduced from £19,000 to £15,000, with plans for further reduction to the upper limit again the following year. The Government has not yet confirmed subsequent reductions. 


Why could this be important to you?


Reducing the upper limit of your small pension pot could affect your ability to access the funds in your private or occupational pension scheme. Moreover, as a direct result of this change in legislation, you may now be unable to access your pension pot until age 50.


The aggregated sum of £50,000 across all small pot commutations has also been removed, meaning that consolidating several small pots may no longer be the best financial solution. 


Any pension scheme that receives employer pension contributions will no longer be commutable under this law until you have left the employer that was paying into your scheme.


If you are nearing retirement, you could lose potential flexibility in accessing your smaller pension pots before leaving your employer. It could mean you may have to wait longer to access benefits from occupational or employer-sponsored schemes.


With all that being said, it could be beneficial to allow your smaller pots to remain in the pension scheme to allow for better retirement outcomes for your funds, which are earmarked for retirement.



The revised law in greater detail:

 

Small Pots Commutation


  • The definition of a “small” pension scheme pot (as per Jersey income tax law) has been reduced from £19,000 to £15,000, and this is expected to reduce further in the future.


  • Your pension pot may now not be accessible until age 50 (via traditional benefits), where previously a small pots commutation would have been possible.

  • The aggregated maximum of £50,000 has now been removed – there is now no limit to the number of small pensions you can encash.

  • Any pension scheme in receipt of employer pension contributions will only be commutable under this law once they are no longer an employee of the company. 


Is this approach right for you? Contact SaSo Strategic Advisers via our website for the most suitable approach, or call us today at 01534 488777.



Triviality


  • Similar to the Small Pots rule above, a pension scheme member may, at any point from age 60, commute their pot under:


  • The difference under the Triviality option is that a 10% tax rate is charged instead of the 20% basic tax rate.


  • From 2024, the upper limit for classifying a pension scheme as “trivial” has increased from £35,000 to £50,000, meaning more pension schemes now qualify for this commutation method.



Want to find out how this new legislation could impact your pension scheme?


Contact SaSo Strategic Advisers via our website or call us today on 01534 488777 to find out if your pension scheme could be affected by the above changes to local pension legislation.





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