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Protected rights cannot be used for flexible drawdown until 2012


Savers will be prevented from cashing in protected rights pension entitlements using flexible drawdown until April 2012 under the terms of the Finance Bill.

Protected rights are pension funds built up from contributions paid by the Government when an employee contracts out of the state second pension or Serps into a money-purchase scheme.

Standard Life head of pensions policy John Lawson (pictured) says the Government’s position is that, up until 2012, protected rights must be used to buy retirement income. However, policymakers will remove the differences between protected and non-protected rights from 2012 onwards, allowing savers to cash in their entire protected rights pot.

Lawson says: “The Government has got this position that protected rights must be used to provide income. It is going to lose that philosophy in 2012 and it will remove all the differences between protected rights and non-protected rights. Protected rights will cease to exist as a concept.”

Government draft rules also stipulate that in order to take protected rights as a tax-free lump sum, investors will have to cash in the same proportion of their non-protected rights. This is to prevent people taking all of their tax-free cash out of their protected rights pot.

The new flexible and capped drawdown regime will be introduced this April, although most providers says they will not have a flexible drawdown offering available by then.

The Retirement Adviser director Nick Flynn says the Government has historically been “overprotective” of protected rights.

He says: “Protected rights have always been deemed as not really your money by the Government, which is a bit of a joke. It has always been overprotec- tive of it and clients are hugely confused by the rules surrounding it.”

From April 6, 2012, protected rights will become ordinary scheme benefits, which was legislated for in the 2007 and 2008 Pensions Acts.

A DWP spokeswoman says: “It is not a standalone policy but part of the rolling programme of improving pension provision for the future.”


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. What happened to pension simplification 2006, everything just gets more complicated almost weekly. Its enough for full time professionals to keep up to date so how the public will fair with fewer IFA’s around post RDR I have no idea.

    Maybe the FSA can answer that for us?
    Of course people with small PR funds will want to pay £200 an hour for the advice.

    Yo’ar aving a laugh guv.

    (At the expense of Mr and Mrs Average)

  2. What happens to my protected rights pot, with Aegon, does this still grow each year, or is it frozen at this amount, or am I able to transfer this money to a sipp, and is this advisable

  3. Does that mean upon normal retirement age (quite soon), I will be able to transfer my Protected Rights Pension into a self-invested scheme? Is there any benefit in me doing it sooner than NRA?

  4. Is it better to put my aegon pension. into my work pension or froze it.

  5. I have a sipp from which I took my 25% lump sum back in May 2010.

    At that time the protected rights were excluded from the lump sum calculation.

    Now that a lump sum can be taken from the protected rights, can I now, go back and ask to take 25% of my protected rights as a lump sum also?

  6. It depends on whether the protected rights were crystallised at the time too….

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