Government rules which allow small pension savers to take their pension pot as cash are so complicated, hardly anyone benefits from them. Instead, those with the smallest pension pots are forced to buy poor value annuities from insurance companies.
But a simple rule change would allow tens of thousands of people to turn their pension pot into cash at retirement, rather than forcing them to buy an annuity which might only pay them a few pounds a week income, according to pension expert Tom McPhail of Hargreaves Lansdown.
"It is madness to force someone with only £5,000 or £10,000 in their pension pot to buy an annuity," he said. "In many cases they'd be better off taking the money as a lump sum and reinvesting it in an ISA."
There are already rules which allow people to take their whole pension pot as a lump sum but only if they have total private pension savings of £18,000 or less. Even then, anyone who has an old, final salary pension is likely to be ineligible because even a £1,000-a-year pension is deemed to be worth £20,000.
The official name for this rule is "Trivial Commutation". "That's pretty off-putting," said Mr McPhail. "Why didn't they call it something simple like a cash-back option?"
He'd like the rule changed to affect only private pensions, so that anyone with, say, £15,000 in their pot would be allowed to take it as cash, whether or not they also had a workplace pension.
The firm has had some informal discussions with the Treasury about changing the rules. "But I don't believe a rule change is currently part of their agenda, despite it being in everyone's interests," said Mr McPhail.
Even people who are eligible can miss out on the option because they are not aware of it, he said.