‘I have a small pension giving me just £46 a month – could I take it as a lump sum instead?’

Pensioner looks worried at document beside laptop

A pensioner has asked whether he can cash in his pension annuity for a lump sum

Jessica Sheldon

By Jessica Sheldon

Published: 03/12/2023

- 06:00

A pension expert has explained the rules surrounding pension annuities

There are several options when accessing the money in one’s pension pot, be that income drawdown, a cash lump sum, an annuity, or a mixture of these options.

From tax implications to securing income spans retirement, there are lots of considerations to make, and seeking impartial and expert financial advice first comes recommended.

A pensioner who has already opted to use their pension pot to buy an annuity, providing a “small” amount of £552 per year, recently contacted GB News to ask if they could cash it in.

GB News put the question to pensions expert Becky O’Connor, who is the director of public affairs at PensionBee.

Do you have a money question you'd like financial experts to answer? Get in touch by emailing money@gbnews.uk.

Becky O'Connor from PensionBee in pictures

Becky O’Connor is the director of public affairs at PensionBee


The reader asks: “I have a small annuity pension which gives me £46 a month, is there any way I could cash this in and take a lump sum?”

Becky O’Connor replies: “Unfortunately, it’s pretty much impossible to cash in an annuity once you have bought one.

"Annuities are designed to give you a guaranteed income either for the rest of your life or for a term, in exchange for the pension pot you bought it with. It’s a bit like a contract - in buying one, you give up your ability to ask for that pot of cash back.

"They are a product, so if you bought it the only way to offload it would be to sell it, and there is no secondary market for annuities.

"If the annuity was bought with a pension worth less than £10,000, then in certain circumstances, some providers might let you cash it in, but it depends on the provider.

"If it didn’t work like this, people could cash in annuities when rates improve and buy a better value one, which wouldn’t be a great business model for the annuity providers.

"Buying an annuity is a very tough decision to make - you get the security of knowing what your income will be for your retirement, which takes away the stress of the alternative, which is managing drawdown from your pension.

"But that security comes at a price, which is the potential that that income could be lower than it would have been if you’d taken the drawdown option.

"You’ll most likely never know which was the right decision for you. The difficulty then is making peace with not knowing.

"For anyone considering buying an annuity, it’s worth thinking about the different ways you can buy one these days.

"They can be for a period of a few years rather than forever and they can also be bought with just a portion of your pension pot rather than the whole lot.

"This halfway house can be useful if, for instance, you think you might need the rest of the pot to cover larger expenses that would require a lump sum withdrawal, rather than income to cover your living costs."

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