Phoenix clients with low paying annuities can switch out for a cash lump sum under a recently launched pilot project.
The closed life fund consolidator said clients with low paying policies can swap future payments for a one off lump sum provided that the cash equivalent value of the annuity does not exceed £2,000.
It said it was one of the firm life and pension providers to offer this option.
The move follows a change in the law last year which allowed people over 60 with pension pots of £2,000 to take the money as a one off lump sum rather than a regular income in retirement.
The amount Phoenix is offering under the pilot scheme will reflect all the potential future benefits a policyholder might expect to receive under their policy.
Spokeswoman Shellie Wells said: "We recognise that many of our customers 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."
Phoenix will be writing to eligible customers from 11 November, and each customer will receive a clear personal outline of the amount they could receive and the tax implications of acceptance.
It is also recommending independent financial advice for anyone unsure of what to do next.
Wells said it was a "win win" for the firm and clients.
"It offers customers a greater degree of control over their pensions, but also enables us to free up resources that go into administrating small annuities that will only pay modest amounts as an income over the lifetime of the policyholder.
"For those who do select to receive their annuity as a one off lump sum, we aim to make this process as smooth as possible, with an easy-to-complete claim form, and the process running for six weeks to allow customers plenty of time to make a decision.
"Customers who wish to stick with their annuity can ignore the application and their annuity payments will continue as before."
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