From 1 October 2008, it will be possible to incorporate ‘protected rights’ funds into a Sipp and invest the money as you wish.
Currently, the investment of protected rights within Sipps is heavily restricted and even where a Sipp provider accepts protected rights money, the funds can usually only be invested in cash, bonds and insured funds and the funds normally have to be kept ringfenced from the rest of your Sipp.
You may have protected rights funds if you have opted out of the State Earnings Related Pension Scheme (Serps, now known as S2P) at any time since 1988 and set up a personal pension to invest the National Insurance rebates and incentives offered by the government to do so.
Between £75 and £100bn of protected rights are believed to be held in personal pensions and a further £250bn in final salary schemes.
Protected rights could constitute up to 40 per cent of your pension fund - a significant amount of money which could be consolidated within a Sipp, making the administration and management of your pension much easier and possibly generating cost savings too.
Tom McPhail of IFA firm Hargreaves Lansdown says: “The ability to invest protected rights money within Sipps from 1 October is all about investment freedom and the facility for people to take control of their funds.
“For instance, if protected rights money is currently invested in a poorly performing insurance company managed fund, you could, for instance, move it into a top performing unit or investment trust, ETF, shares, property, bonds or any other investment permitted by your Sipp provider.”
Another benefit is that protected rights can be put into income draw down (now known as Unsecured Income). However, if you are married and want to buy an annuity before 2012, you must use your protected rights money to purchase a spouse’s annuity as well. After 2012, this restriction will be lifted.
Contracting out via money purchase pensions will be abolished from 2012 anyway, so now may be a good time to think about what you want to do.
For more on Sipps, read our guide:
http://www.defaqto.com/consumer/pensions/compare-sipps/guide-to-sipps.aspx
Visit www.sippsupermarket.com
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