Pensions

Paul Rowen
To ask the Secretary of State for Work and Pensions what recent estimate he has made of (a) the number of people in the UK with stranded pensions and (b) the monetary value of such pensions; and if he will make a statement.

Ms Rosie Winterton
[holding answer 21 May 2009]: The information is not collected centrally and therefore the numbers requested are not available.

Government have introduced a number of changes to trivial commutation rules in recent years to help people avoid the problem of stranded pension pots. The 2004 Finance Act increased considerably the amount that could be trivially commuted from £2,500 in 2005-06 to £15,000 in 2006-07. This change benefits those with individual funds above the old limit. However, the limit applies to the aggregate value of all funds held by an individual (to ensure trivial commutation is not exploited for tax reasons) and so can still result in an individual with several pension funds facing one or more stranded pots.

Easements to the trivial commutation rules for occupational pensions come into force 1 December 2009. These amend rules so that small occupational pension pots of less than £2,000 can be commuted as a trivial lump sum irrespective of the total value of funds held by the individual. This will help to ease the problem of stranded pensions.

The problem of stranded pensions must be weighed against the need to make sure that pension savings, which attract favourable tax treatment, are ring-fenced to generate income in retirement.