Historically, many people chose to contract out of the State Earnings Related Pension Scheme using their money purchase pension. Put simply, this meant that the money that would have gone into SERPS went into their personal pensions instead – effectively, they were swapping known benefits from the Government for unknown (but potentially greater) benefits from their own pension scheme.
Money which was re-directed in this way was known as ‘protected rights’ – as distinct from ‘non-protected rights,’ which was the part of a pension which came from an individual’s own contributions and/or from the contributions of an employer.
Gradually, however, the popularity of this type of arrangement has tailed off and from April 6th this year the option to re-direct funds into a personal pension in this way will no longer be available.
However, many people – especially high-earners – have built up significant amounts of ‘protected rights’ using the previous arrangement. Many will now be thinking that the only option from April 6th is to leave the funds where they are, keep an eye on their performance and take the benefits as and when they retire. But as one door closes, so another opens and it appears that new rules introduced from April 6th will give those people who have built up significant amounts in protected rights the chance to use the funds through Self Administered or Self Invested pension funds.
These schemes – Small Self Administered Pension Schemes and Self Invested Personal Pensions – give the individual investor much greater control over his or her pension, and allow a much wider range of investments, including property and individual stocks and shares. If you are a company director, then in some cases there can also be the option to make loans to the company, with repayments then being made to your pension scheme.
This is a complicated area of pension planning, and one where specialist advice is very much needed. However, if you have built up a significant amount in your protected rights fund then it would certainly be worth contacting us, as we believe that there is a significant chance to obtain both greater growth from your pension, and much more control of the areas where it is invested.