From 6 April 2012 the UK Government has ended the contracting out of the State Second Pension (SSP) (formerly known as the State Earnings Related Pension Scheme (SERPS)) on defined contribution schemes. Since 6 April 1978, it has been possible for employers with final salary schemes to contract out of SERPS. From 6 April 1988, members of defined contribution schemes were also able to contract out.
By way of example, if you had a money purchase scheme and were contracted out, a fund was established made up of contributions equal to the amount of both an employer’s and employee’s reduction in National Insurance Contributions. This fund was kept separate from other contributions and was known as Protected Rights (PR).
If you have PR, from 6 April 2012, these will convert to what is currently known as non-protected rights (NPR) and the restrictions relating to PR will be removed. Such restrictions included the need to have PR and NPR separately identified in your pension plan. When taking benefits from your PR fund you also had to take proportional amounts from your NPR fund within the same scheme. In addition, if you were married or in a civil partnership, 50% of your pension income had to be payable to your dependent on your death.
The impact that the above will have on people with NPR and PR within a Self Invested Personal Pension Plan (SIPP) will depend upon the status of the applicable SIPP. For example, is the SIPP already in drawdown? Your pension plan provider and/or financial advisor should be able to provide further detail. However, if a person was to undertake a new pension transfer into a SIPP after 6 April 2012, there would be no distinction between the NPR and PR. Funds should be amalgamated and treated as one.