What is Small Pots Rule?

Full Definition

The small pots rule lets you take an entire small defined-contribution pension pot as a lump sum, separate from the usual rules for accessing pensions. You can normally cash in up to three personal-pension pots (and an unlimited number of occupational-scheme pots) valued at GBP 10,000 or less each. As with most pension withdrawals, 25% of each small pot is usually tax-free and the remaining 75% is taxed as income at your marginal rate. The key advantage is that taking a pot under the small pots rule does not trigger the Money Purchase Annual Allowance, which otherwise reduces your future contribution allowance to GBP 10,000 a year once you flexibly access a pension. This makes it useful for tidying up forgotten or fragmented pots while preserving your ability to keep saving against the GBP 60,000 standard Annual Allowance. You must usually be at least the normal minimum pension age to use it.

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