£100bn of protected rights funds can now be invested in Sipps

Published on Friday 27 June 2008 21:56

MILLIONS of investors will enjoy new freedoms over how to invest their protected rights funds from October. Currently, protected rights – money built up from national insurance rebates when people contract out of the state second pension – must be used to buy a joint life annuity.

But the government yesterday confirmed that protected rights will be eligible for self-invested personal pensions (Sipps) from October this year. It's estimated that protected rights funds, held by around six million investors, account for 100 billion of the total 440bn worth of personal pensions in the UK.

Experts predict that thousands of investors will take advantage of the opportunity to switch their funds to Sipps, which typically offer a wider range of investments than traditional pensions.

"There will be a huge uptake because thousands of investors will have taken out a Sipp but been unable to move their protected rights money into it," said Nigel Callghan, pensions analyst at IFA Hargreaves Lansdown.

Sipps are only suitable for investors who want to take control of their pension investments, so a large proportion of those with protected rights will opt against moving them.

"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," said Rachel Vahey, head of pensions development at Aegon. "This removes an anomaly that did more to confuse people than help them plan for retirement."

But insurance companies not able to offer Sipps will lose out, Callaghan pointed out. "Effectively, 100bn of protected rights funds have been held to ransom by insurers. Now the rules have changed, thousands will take their funds elsewhere."