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Protected rights move could spark acquisitions

Rule changes allowing protected rights’ cash to be invested in Sipps may push insurers on to the acquisition trail, says Hargreaves Lansdown.

The Department for Work and Pensions announced last week that investors will be able to invest protected rights’ funds into Sipps from October.

Hargreaves Lansdown says the news is “potentially catastrophic” for insurance companies which have enjoyed a virtual monopoly over managing these assets.

It says protected rights makes up around £100bn of the total £440bn invested in UK personal pensions.

Head of pensions research Tom McPhail says: “Most insurance companies holding the bulk of personal pension money are going to struggle to look attractive to investors alongside Sipps, as the protected rights issue was one of their last remaining defences.

“We are likely to see some insurance companies forced into panic buying Sipp providers when they realise that personal pensions are no longer fit for purpose.”

Sipp provider Hornbuckle Mitchell has recently put itself up for sale and appointed Ernst & Young to field bids. This follows Legal & General’s acquisition of Suffolk Life earlier this year for £62m.

Hornbuckle Mitchell marketing director Mary Stewart says: “Treating protected rights’ funds as a separate entity has added cost and complexity and reduced investment choice. Clients are keen to combine their pension money in one place, allowing more coherent investment planning and a greater level of control.”

Scottish Widows head of pensions market development Ian Naismith says: “We are concerned that many people could be advised to transfer protected rights into a Sipp without realising the effect of charges under their new arrangement which could be higher than for their existing personal or stakeholder pension. We believe strongly that all transfers into Sipps should be accompanied by full disclosure showing the possible pension at retirement and the effect of charges.”

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