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DWP looks to lift all restrictions on protected rights

Aim is to remove administrative burden of tracking two types of benefit

Government proposals to lift the remaining restrictions on protected rights have been welcomed by the industry.

The Department of Work and Pensions has published a consultation paper on the treatment of protected rights.

It has already introduced a number of changes since A-Day that bring protected rights in line with some of the rules applying to non-protected rights, including allowing 25 per cent of the protected rights fund to be taken as a tax-free lump sum.

But there are still restrictions on protected rights which the Government says are making schemes overcomplicated to administer and mean that protected rights have to be tracked separately from non-protected rights at the point of annuitisation.

Restrictions include the investment of the rebate, protected rights being limited to certain types of pension schemes and annuities securing protected rights being provided on a unisex basis.

The DWP is now proposing to remove remaining restrictions so that scheme members’ entire money-purchase funds can always be treated in the same way. The alignment of rules would cover the purchase of annuities, transfers and payment after death of a member.

The DWP says this would reduce the administrative burden for schemes as it would no longer be necessary for protected rights to be tracked separately. It says the move will also give members a greater say in how their fund is invested.

The move has been applauded by industry figures and many are particularly keen for the Government to allow investment of protected rights in self-invested personal pensions.

Responses to the consultation paper have to be submitted by October 13.

Scottish Life head of pensions strategy Steve Bee says: “The A-Day stuff was a good step in the right direction but these new proposals are suggesting it would be better to go the whole hog and stop treating protected rights funds as being any different from any other money that people have put aside in personal pensions and occupational money-purchase schemes.

“This would be good news all round I would think and will be particularly useful for people managing their pension savings in Sipps.”

Standard Life marketing technical manager Andrew Tully says: “This is something that we have been pushing for a while as it makes it much easier from a client’s perspective as they do not get two different tranches of benefit shown on benefit statements or have to buy different benefits at retirement.”

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