Refund on tiny 'micro' pensions offered

Do you have a micro pension? That is, a pension pot worth less than £2,000 which returns as little, in some cases, as £1 a month? Contrary to past pension professional practice, Phoenix Group is allowing some pension scheme holders to claim back much of the value of their pension - in a cash lump sum.

It's a pilot scheme so far, but is it worth considering if you're eligible?

A bird in the hand?

That depends, in part, on how long you expect to live. Granted, some pension annuities are pittances. Such a move though relieves the pension company of the administrative burden and expense of handling your pension.

"Many of our customers," Shellie Wells from Phoenix told the Telegraph, "have annuities which provide small regular income payments. This scheme offers them a choice – to take a one off lump sum now or continue with the small annuity they previously selected."

Thisismoney calculates that a 75-year-old who took an annuity 15 years ago might currently take an income of £110 a year, for example. But if they took the Phoenix offer, they'd receive a taxable £1,141 lump sum.

Advice is pricey

Some pensions may have been racked up after short spells in employment. Modern job churn is far higher than it was in the past. Phoenix is also suggesting financial advice, if appropriate for those eligible, especially if it could alter someone's tax position. Financial advice though can be pricey - it may be a close call.

The move could spur other companies to act in a similar way. But some deals may be better than others and if your health is good and a pension is index-linked to inflation, it may pay to hang on and let the pension company stew in its own administrative juice.

And as auto-enrolment kicks in, the issue of micro pensions - and what to do with them - will continue, especially for those with short employment spells.

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