SIPP your protected rights.

By Danny Cox | 10 Jul, 2008 

Good news. It was confirmed recently that the rules will change so that Protected Rights pension money can be transferred into a SIPP from 1st October.

Protected Rights stem from contracting out of the State Second Pension (S2P) or its’ predecessor SERPS (the State Earnings Related Pension Scheme) and are funded through national insurance contributions.

When you are employed and pay national insurance contributions, these are used to fund many welfare state benefits, including the Basic State Pension. Depending upon how much you earn you would also be funding the additional earnings related pension, S2P.

Contracting out of the earnings related pension meant that part of your national insurance contributions was diverted to a personal pension or stakeholder pension plan. These contributions were invested on your behalf and provided you with a pension at retirement. The idea here was that rather than the Government providing the second tier of pension, you took the investment risk and provided that pension yourself. It is important to stress that the Basic State pension is unaffected by being either contracted in or out.

Since the changes to pensions in April 2006 (I daren’t call them simplification anymore) Protected Rights were left outside of the rules that allowed you to invest them as you could any other pension money, in a SIPP.

Now this is changing and from October investors will be able to move these funds into a SIPP. I for one will be transferring my Protected Rights fund into my Vantage SIPP at the earliest opportunity. There is a better investment choice although you must remember that investments can fall in value as well as rise. Also, one set of paperwork less to drop through the letter box is certainly good news for me.