It gives you the opportunity to benefit from the wide investment choice, low costs and control offered by a SIPP. Until now the only option for most individuals has been to hold it in a traditional style personal pension or stakeholder plan.

What are Protected Rights?

The term is used to refer to the money built up within a Personal Pension as a result of opting out (known as ‘contracting out’) of SERPs or S2P. In return for a lower state pension, you receive a rebate of your National Insurance payments which is paid into your pension scheme. These payments, and the growth on them, are fenced off as protected rights.

The term protected means that there are investment limitations. The new legislation means that they are effectively removed. The main difference between ‘Protected’ and ‘Non Protected’ is only really apparent if you are married or in a civil partnership and when you choose to take the benefits. If this is the case then any annuity that you purchase from the ‘Protected Rights’ element must be on unisex rates, must include a reduced income for your partner, and include a guaranteed minimum payment term in the event of your early death.

What is a SIPP

A SIPP (Self Invested Personal Pension) is a means by which you can gain greater control over the investment of your pension money which, typically might have previously been invested in insurance companies’ pension funds via a Personal Pension, Executive Pension or a Stakeholder Pension. SIPPS offer far greater flexibility than ordinary personal pensions due to the range of investment options which are available. These may include: Stocks and Shares, Unit trusts, Investments trusts, Managed funds and Commercial Property.

Despite this flexibility, SIPPs are not necessarily right for everyone. Flexibility is a major consideration but one which needs to be weighed against existing investment products, charges, time to retirement and your attitude to risk. However, in the right circumstances, they can open up a whole world of investment opportunities, which could seriously enhance your potential for a comfortable retirement.

What shall I do?

First identify if you are still contacted out. You can find out by contacting HMRC Contracted Out helpline 0845 915 0150. Second contact the Preserved Pension Plan provider and request details of the plan. HMRC will inform you who the provider is.

Ask for the fund value, transfer value, details of fund allocation and if there are any transfer penalties; it could take a while. You can then approach an Independent Financial Adviser who will take a detailed look at what you have, what your plans are, what your risk profile is and whether a SIPP meets your needs.

Useful websites

http://www.moneymadeclear.fsa.gov.uk/pdfs/contracting_out.pdf
http://www.fsa.gov.uk/tables/bespoke/Pensions

The First Way – Lifetime Annuities

For many people, a traditional fixed rate annuity is the perfect answer. You know what you will get year in year out and you can plan your future accordingly. Sounds good but it comes at a cost. Interest rates on which annuities are based are pretty low at the moment compared with historic rates. People are living longer and inflation rates are creeping up. In later years you may be struggling to keep pace of prices.

You also have to decide whether you want to provide for a spouse or civil partner. If you do your starting pension will be less than if you just choose to provide an income just for you. What you need is the ability to read the future because you need to know when each of you is going to die. Bit of a risk?

The Second way – Unsecured Pension

Another answer is to take advantage of an unsecured pension. This plan allows you to draw down an income and leave the rest of your pension fund invested. This offers the opportunity for more growth and better income. It also means that you can defer any decision about providing for your spouse or civil partner right up to your 75th birthday. This is again, suitable for some, but the value of your fund can fall as well as rise whilst it is still invested. You might not want to take that risk.

The Third Way – The best of both worlds?

Providers have now come up with what they call ‘third way annuities’. The idea is you can take some of the investment risk but you are protected by an underlying minimum guarantee of income. Hence, in good years, you get the benefit of some of the market rise through a higher income, but in bad years, a guarantee takes over and maintains your income at the pre-agreed level.  Sounds great? Well yes, but there are minimum fund requirements, long term commitments and costs to be considered.

What shall I do?

As with everything in life, one plan is never right for everyone. That’s why I can offer a full pension review service tailored to your retirement priorities.  First, I take a detailed look at what you have, what your plans are, what your risk profile is and what different products might help. Then I put together a full recommendation which will maximise your income, taking account of these needs.

If you would like more information, call our office and we can discuss the process in more detail, without obligation. It will take only a few minutes – but the result could end up making you thousands of pounds.

Click here for your free retirement option booklet

Some Useful guides…
http://www.moneymadeclear.fsa.gov.uk/guides/retiring_soon/retiring_soon.html
http://www.moneymadeclear.fsa.gov.uk/products/retirement/retirement_options.html
http://www.moneymadeclear.fsa.gov.uk/pdfs/income_withdrawal_ink.pdf