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Rights and wrongs

After the disappoint-ment of Chancellor Gordon Brown changing his mind about allowing residential property into Sipps, it was almost heartening when the Department for Work and Pensions made a positive announcement about protected rights.

The Government’s response to the consultation, called, Pensions: Contracted-out Benefits and Miscellan-eous Amendments, states that Sipps have come into the mainstream and are no longer necessarily high-charge and high-risk investment vehicles and there should be no restrictions on Sipps holding protected rights.

The DWP says the Govern-ment will review its position again once the consultation on regulatory arrangements has concluded and the new arrangements are in place.

However, Hargreaves Lansdown head of pensions research Tom McPhail says: “The statement from the DWP is still not partic- ularly clear and I think there have been some misunderstandings.

“My understanding is that from April 2006, you can put Sipps into a protected rights policy, not the other way around. If you are an appro-priate scheme provider, you can start a Sipp inside that. But from April 2007, you can put protected rights into a Sipp, which is the end- game that everyone has been looking for.”

Basically, Sipp providers may not be able to take protected rights within the policy until a year after A-Day, when Sipps become regulated.

McPhail says further clarification is needed and Hargreaves Lansdown wants to meet pensions minister Stephen Timms to discuss the full implications of the DWP statement.

Both Syndaxi Financial Planning managing director Robert Reid and Suffolk Life sales and marketing director John Moret believe there is no need for the delay and the rules should be implemented at A-Day.

Reid has been talking with the DWP on the issue for several months. He says: “The news that the DWP was restricting protected rights to insurers was badly received so this change of heart is welcome. We still have to see the final rules as they are currently written in gobbledygook. What I think is interesting is the flood of money coming out of insurers. Our contracting-in databases are bang up to date, already set up and raring to go so as soon as the rules are ready, we will be ready. “

Reid says a big part of the insurers’ market has come from protected rights. He remembers the time when insurance companies paid direct salesforces 50 for every case they brought in.

Standard Life sales and marketing director John Lawson says: “Standard Life is delighted that the DWP has recognised that Sipps are now mainstream pensions which do not present any additional risk to investors than any other pensions. Allowing protected rights to be self-invested is a major step forward in making pensions simple. However, other differences between protected rights and non-protected rights remain, such as the requirement for unisex annuities and spouses’ pensions and we would encourage the DWP to look at these aspects too.”

But Moret says: “There is no guarantee as to what the Government will eventually do. There is still a period of uncertainty, leaving us treading water. I cannot understand why there has to be a period of 15 months for this to be sorted out. In the short term, I think this is playing into the hands of the life companies.”

The Association of Member Directed Pension Schemes says the response from the DWP sets the wheels in motion for progress. Chairman Francis Moore says the DWP is waiting to see what the final form of Sipp regulation will be and does not yet fully understand how Sipp regulation will work.

Axa head of pensions and savings policy Steve Folkard says the delay could be for any number of reasons and he suggests that the Government could be looking at restricting investment types.

He says: “The major issue is that rebates in protected rights are less than they should be so, ultimately, this ends up being an advice issue, which can be nothing but positive for financial advisers. But we should note that there still remains a lot of complexity. At this stage, things are not that simple.”

Norwich Union head of pensions Iain Oliver says there is confusion as to whether protected rights pots can be held within Sipps alongside existing money or whether they will need to be covered by separate scheme rules.

NU says the indication from the DWP statement is that there will be no problem within NU’s single scheme product proposition.

Intelligent Pensions technical manager David Trenner believes the confusion is largely down to the DWP’s misunder-standing of investments. Prior to the DWP consult-ation, Trenner says that he could easily have taken his protected rights into a with-profits fund, invested in a technology fund through an insurance product which would potentially have lost up to 70 per cent of its value in four years. But the DWP would not allow the risk to be spread across four or five funds from fund management houses in a Sipp.


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