1 in 5 SIPP investors use new rules to transfer protected rights

1 in 5 SIPP investors have taken financial advice and made use of last year's change in pensions rules to transfer their protected rights into a SIPP, according to Fidelity FundsNetworkTM.

19% of investors in Fidelity's advised SIPP have transferred their protected rights in the last year and a further 11% of direct investors have followed suit.

Protected rights are the funds built up by individuals who were ‘contracted out' of SERPS or the State Second Pension.

Government restrictions on where protected rights contributions can be invested were lifted on 1 October 2008, giving millions of people the opportunity to re-energise their pension savings by transferring existing plans into a Self Invested Personal Pension (SIPP).

Restrictions around protected rights were further simplified in April this year when safeguarded rights were abolished for divorced couples - effectively leaving divorcees free to take the portion of any contracted-out protected rights whenever they choose rather than at age 60.

However, come 2012, protected rights will be abolished and people will no longer be able to contract out. Instead, the money will stay in the second state pension. This will mean that existing protected rights pots will only grow if the underlying investment is working for you. For people who still have not transferred, they may want to consider doing so in order to consolidate their pensions and have access to a range of investment options.

Peter Hicks Head of UK Retail Sales at Fidelity International comments: "SIPPs offer a far wider range of investments than traditional pension plans, including funds from many investment companies, shares and commercial property. They are a good way to consolidate a range of pension plans, especially for people interested in using income drawdown in retirement.

"Since the restrictions were lifted last year, we have seen a steady flow of protected rights money come into our SIPP as investors have made the most of the opportunity to consolidate their pension pots and make their money work harder for them.

To help advisers and their clients with the transferring of protected rights, Fidelity FundsNetwork has designed new client-friendly guides which explain what protected rights are, what changes are being made in 2012 and outlines the benefits of transferring protected rights money into a SIPP.

Rob Fisher, Head of UK Personal Investments at Fidelity International, continues: "Research that we conducted last year found that a lot of protected rights holders were just fed up with the poor returns offered by insurance company funds and, despite the burden of exit charges of up to 25%, wanted to transfer the money into a SIPP. Within the last year we have seen 20% of SIPP investors transfer their protected rights, despite extremely volatile market conditions."