AEGON welcomes extra flexibility to Protected Rights

The DWP has announced it will make changes to the Appropriate Schemes regulations setting out that all registered pension schemes - including SIPPs - can hold protected rights from October 2008.

This will remove the current restrictions which don't allow SIPPs to be an Appropriate Personal Pension (APP), and often means protected rights have to be held in a different pension scheme to the SIPP.

However, protected rights will still have to be separately identified from other benefits, and restrictions will still apply to these types of benefits. Protected rights funds have to be used to buy a dependant's pension at the time of retirement if the person is married. Protected rights form a substantial part of the UK's retirement savings, possibly up to £100bn.

Rachel Vahey, head of pensions development, comments: "This is a big step forward in making pensions clearer for everyone and will make it easier for people to consolidate funds, if this is the best option for them. Allowing the self-investment of protected rights removes an anomaly that did more to confuse people than help them plan for retirement.

"But it is disappointing that the DWP isn't prepared to go a little bit further and remove all the differences between protected rights and non-protected rights now rather than wait until 2012. Removing the restriction to provide a spouse's pension would simplify pensions greatly and mean people could use all their pension pot to buy the right type of annuity to suit their retirement income needs.

"We shouldn't underestimate how big a change this is. It will mean significant alterations to systems and literature. Timescales will be tight to meet the October implementation date."