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Protected Rights in Pensions.

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    Protected Rights in Pensions.

    On Friday 27th June, the DWP released their response to the consultation paper regarding allowing protected rights into SIPPs.

    They have confirmed that SIPPs will be able to accept protected rights and be used to contract out OF S2P from 1st October 2008.

    Protected rights money will be permitted to invest in the full range if investments, including commercial property. There will still be a requirement to ring fence the protected rights monies.

    The regulations to allow these changes will be made in July.

    Just thought this might be of interest to some of you as i think the subjects been raised once or twice.

    #2
    COuld you explain that for the hard of thinking among us? What does it mean in real terms for contractors paying into personal pensions?
    "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

    Comment


      #3
      Originally posted by DaveB View Post
      COuld you explain that for the hard of thinking among us? What does it mean in real terms for contractors paying into personal pensions?
      Protected Rights are the parts of either an old company pension or a personal pension that represented contributions in lieu of either the company's or the individuals decsion to contract out of S2P, formerly SERPS. So, if you've been "contracted out" in the past you will have some accrued benefits under an Appropriate Personal Pension (a Personal Pension Plan appropriate for the purposes of "contracting-out" that only receives NI rebates).
      You've always been able to transfer these between Personal Pensions but,as a lot of you have SIPPS you'll know that, until now, you've never been able to transfer them into your SIPP. This has probably left some of you with fragmented pension arrangements i.e. "I've got a SIPP but I've also got this old plan that my SIPP won't take". Well, as of Oct it will. Mind you, just because legislation will allow it it still doesn't mean your SIPP provider will - that's up to them, same as it is with what class of investments they'll take. Safe to say, there will be SIPPs that definately will after this date.

      Comment


        #4
        Originally posted by glashIFA@Paramount View Post
        Protected Rights are the parts of either an old company pension or a personal pension that represented contributions in lieu of either the company's or the individuals decsion to contract out of S2P, formerly SERPS. So, if you've been "contracted out" in the past you will have some accrued benefits under an Appropriate Personal Pension (a Personal Pension Plan appropriate for the purposes of "contracting-out" that only receives NI rebates).
        You've always been able to transfer these between Personal Pensions but,as a lot of you have SIPPS you'll know that, until now, you've never been able to transfer them into your SIPP. This has probably left some of you with fragmented pension arrangements i.e. "I've got a SIPP but I've also got this old plan that my SIPP won't take". Well, as of Oct it will. Mind you, just because legislation will allow it it still doesn't mean your SIPP provider will - that's up to them, same as it is with what class of investments they'll take. Safe to say, there will be SIPPs that definately will after this date.
        Ahh thanks, it's a bit clearer now. Does make sense as well as I have an old contracted out personal pension from a few years back that I stoppped paying into during a lean spell. Time go find out if it's worth transferring into my current personal pension if possible.
        "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

        Comment


          #5
          I used to have a contracted out pension with previous employer and that is now deferred. I have no intention of moving it since it is a final salary scheme.

          For the last 5 years I have been a Ltd Co contractor and my co pays into a SIPP for me with Hargreaves Lansdown every month. I believe I am now contracted into S2P by default. Can I now come out of S2P in favour of my SIPP? I have no confidence that (at the age of 50) 15 further years of paying into S2P is going to produce any significant pension over and above my state pension. I have already paid 34 years of NI towards my state pension.
          Public Service Posting by the BBC - Bloggs Bulls**t Corp.
          Officially CUK certified - Thick as f**k.

          Comment


            #6
            For the last 5 years I have been a Ltd Co contractor and my co pays into a SIPP for me with Hargreaves Lansdown every month. I believe I am now contracted into S2P by default. Can I now come out of S2P in favour of my SIPP? I have no confidence that (at the age of 50) 15 further years of paying into S2P is going to produce any significant pension over and above my state pension. I have already paid 34 years of NI towards my state pension.
            I believe that the finance act going through parliment means that from 2012 nobody get's the option to opt out of S2P. So you have to weigh up whether it is worth opting out for the next 2 or 3 years.

            Comment


              #7
              Originally posted by KackAttack View Post
              I believe that the finance act going through parliment means that from 2012 nobody get's the option to opt out of S2P. So you have to weigh up whether it is worth opting out for the next 2 or 3 years.
              Excellent point. It also drops the number of years NI has to be paid to entitle you to an old age pension. I already exceed that number of years. The question I ask myself now is- "should I pay myself enough salary to pay any NI at all?".
              Public Service Posting by the BBC - Bloggs Bulls**t Corp.
              Officially CUK certified - Thick as f**k.

              Comment


                #8
                Originally posted by KackAttack View Post
                I believe that the finance act going through parliment means that from 2012 nobody get's the option to opt out of S2P. So you have to weigh up whether it is worth opting out for the next 2 or 3 years.
                Yep, you're right. The Pensions Bill 2006 contains draft legislation which will remove the option of personal pension contracting out. This is likely to take effect when the earnings link for Basic State Pension increases is re-established, i.e. probably from 2012/13 when a new set of rebates is due. Most "experts" believe that the current level of NI reductions and rebates does not make contracting out viable in pure financial terms and it's unlikely that by 2012/13 there are likely to be many people still contracted out via personal pensions, given the numbers contracting back in, and also due to actions by pension providers.

                Comment


                  #9
                  Originally posted by glashIFA@Paramount View Post
                  Yep, you're right. The Pensions Bill 2006 contains draft legislation which will remove the option of personal pension contracting out. This is likely to take effect when the earnings link for Basic State Pension increases is re-established, i.e. probably from 2012/13 when a new set of rebates is due. Most "experts" believe that the current level of NI reductions and rebates does not make contracting out viable in pure financial terms and it's unlikely that by 2012/13 there are likely to be many people still contracted out via personal pensions, given the numbers contracting back in, and also due to actions by pension providers.
                  I read an interesting article about contracting out about a year ago. I'll never be able to find it but it basically said that yes purely looking at the figures most people are better to remain contracted in, especially those on low incomes (like low salary contractors). But it also said you should consider that a bird in the hand can sometimes be worth two in the bush and it is possible that legislative changes in the future might affect the figures in such a way that you might look back and discover it would have been better to contract out after all. I've been contracted in for all my life and I have no idea what is in my 'pot' (I think you can request a prediction from HMRC though) but last year I contracted out after reading the article during a point where I was particularly against the government and I am pleased to see a nice little 'protected rights' lump in my pension (more than I was expecting). I now know how much I have and that it is safe and I can chose how to invest it. I feel much better even if it that amount is lower than I might get in the future mainly because I am now in control of the money.

                  Comment


                    #10
                    Originally posted by Lewis View Post
                    I read an interesting article about contracting out about a year ago. I'll never be able to find it but it basically said that yes purely looking at the figures most people are better to remain contracted in, especially those on low incomes (like low salary contractors). But it also said you should consider that a bird in the hand can sometimes be worth two in the bush and it is possible that legislative changes in the future might affect the figures in such a way that you might look back and discover it would have been better to contract out after all. I've been contracted in for all my life and I have no idea what is in my 'pot' (I think you can request a prediction from HMRC though) but last year I contracted out after reading the article during a point where I was particularly against the government and I am pleased to see a nice little 'protected rights' lump in my pension (more than I was expecting). I now know how much I have and that it is safe and I can chose how to invest it. I feel much better even if it that amount is lower than I might get in the future mainly because I am now in control of the money.

                    Oh sure, the financial issues surrounding contracting in or out should not be the only considerations.

                    You're absolutely right that, in financial terms, the only time you'll be able to tell if you did the right thing whatever that was, is when you take the benefits.

                    Other things need to be considered such as, a contracted in pension (S2P/SERPS) can only be taken at state pension age at the earliest whereas an annuity from a contracted out pension can be taken from age 50 onwards (55 from 2010).

                    No tax free cash from S2P/SERPS - up to 25% from contracted out pension.

                    S2P/SERPS is a benefit paid by the government. For the serious doubter of gov't faith, rebates paid to a personal pension are much to be preferred to a promise of benefits at some distant date, many elections down the line.

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