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DWP confirms all SIPPs can hold Protected Rights
by Ian Neale 01/07/2008
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Last Friday the Government published the eagerly-awaited response to the consultation [PDF] on amendments to the PPS (Appropriate Schemes) (Protected Rights) Regs (see earlier Aries article).
An accompanying DWP press release confirmed the Amendment Regulations - permitting all SIPPs* to hold protected rights - are to come into effect on 1 October 2008 and will be laid in Parliament shortly. The regs also remove a provision in the protected rights legislation that permits a survivor's annuity to continue to be paid to any other person if the survivor dies during a five year guarantee period.
* at present, only a few insurance-based SIPPs can hold protected rights
Although the draft regs were relatively straightforward, covering barely one page, it took the DWP some time since the consultation closed on 29 February 2008 to compile reasons why various suggestions for improvement were unnecessary or unacceptable. A concern the DWP did accept was that as the regs were originally drafted, schemes which were not already in existence on 6 April 2006 would not meet the requirements. This has been corrected, so that providing a scheme holds an appropriate scheme certificate - which, incidentally, rules out SSASs, it can accept protected rights. An application can be made on form APSS101; early applications are encouraged by HMRC.
Points raised which the DWP did not accept included suggestions that:
- all of the protected rights rules should be removed now rather than linked to abolition of contracting out on a DC basis (no, because HMRC could not change their IT systems any quicker);
- the Protected Rights Regulations should be amended to permit them to be used to buy investment-linked annuities (impractical);
- the 50% survivor benefit rule should be more flexible (ditto); and
- all registered DC schemes (including eg EPPs) should be permitted to hold protected rights, not just those which are contracted out (too difficult; would require changes to primary as well as secondary legislation).
The main hurdle for many SIPP providers wishing to accept protected rights is that there will not be enough time between now and 1 October to implement systems to meet FSA requirements. In particular, when a firm sells an appropriate personal pension policy, it must give the customer a "Contracting-out Comparison". This allows the customer to compare the State Second Pension given up with the potential return from the appropriate personal pension. The FSA is aware of the problem: their April 2008 Quarterly Consultation Paper No. 16 (para 2.13), detailing its policy, asks whether providers agree with its proposal to require SIPPs holding a contracting-out certificate to provide this comparison, in line with other APPs. (This consultation closed on 4 June; although no official response has been published yet, it would be very surprising if the FSA rowed back.) The DWP considers that while 1 October "may still be challenging", it should be achievable and more to the point, in view of the pent-up demand, implementation cannot now be further delayed.
Finally, the DWP confirms that pending abolition of contracting-out on a DC basis (expected to be in 2012; see latest Aries article on the Pensions Bill), protected rights held in a SIPP will need to be ringfenced.
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