Last Friday the DWP published the Governments response to their consultation on SIPPs and Protected Rights. The paper also has useful updates on the Governments thinking on other issues relating to protected rights for defined contribution schemes.The key points are as follows:
- Protected Rights in SIPPs – The proposed changes to permit SIPPs to hold protected rights will go ahead. They plan to make the final regulations in July with them coming into force from 1 October 2008.
- Removal of Survivor Benefit Rules - The Government has further considered the survivor benefit rules in light of the joint DWP and HMT review of the OMO for annuities and the various representations on this issue. The Government has concluded that it will be possible to remove the requirement for survivor’s benefit to be provided if an individual who dies with a protected right fund leaves a spouse or civil partner. The intention is to achieve this through the introduction of an amendment to the Pensions Bill. The change will come into force when defined benefit contracting out is abolished and the other rules in respect of protected rights are removed. This is planned for April 2012.
- Five Year Guarantee Period – The Government currently sees a conflict between the existing regulations (SI 1996/1537) for protected rights permit and Finance Act 2004. This is to be addressed by the final regulations to be made in July with them coming into force from 1 October 2008.
The Finance Bill is already removing the other rules for protected rights when defined benefit contracting out is abolished (expected to be in 2012). From that point it will no longer be necessary to ring-fence protected rights from non-protected rights.
Many commentators (read product providers) expect there to be an increase in the transfer of protected rights funds to SIPPs now that we have clarification on the issue. Some providers have already begun accepting protected rights funds although the investment is restricted to cash.
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CORRECTION: The penultimate sentence of point 2 should read:
“The change will come into force when defined CONTRIBUTION contracting out is abolished and the other rules in respect of protected rights are removed.”
Thanks John.