Self-investment of protected rights finally gets green light

The Government has issued a consultation paper which will allow protected rights funds to be self-invested in future.

At present, protected rights must be invested in insured funds, bank deposits or mutual funds such as OEICs. Some insurers get around the self-investment restrictions by creating a member-directed insured fund. However, these changes will allow complete freedom to invest directly - for example in shares and commercial property.

The Government is still considering whether the requirement for survivor’s benefits to be provided from protected rights should be retained. Currently, those who are married or in a civil partnership are required to buy a 50% spouse’s pension with their protected rights pot.

The downside of keeping this requirement would be that protected rights and pensions built up from other savings would still need to be recorded, and identified, separately. As a result, communication with scheme members would be more complex than necessary and, with the need to buy two annuities rather than one, people would get less income from their savings.

The consultation runs until 29 February 2008, and SIPPs should be able to accept protected rights money from October 2008.

Andrew Tully, Marketing Technical Manager, Standard Life Assurance Limited, said: "These changes are excellent news and will give people greater control of their retirement savings. Much of the money currently locked up in protected rights, estimated to be between £75 billion and £100 billion, will make its way into SIPPs as people want the flexibility and choice to invest their pension pot where they wish.

"I hope the Government will also remove the requirement to buy a survivor's pension with the protected rights pot. Removing this will make pensions much easier to understand and improve choice for the estimated ten million people with protected rights savings."