No more Contracting Out
17 February 2012
Those saving for their pension maybe aware that from 6th April
2012, contracting out of the state second pension scheme (formerly
known as SERPS) will cease. In addition, it will no longer be
necessary for money purchase pension schemes (group personal
pension plans are included in this) to recognise Protected Rights
funds (the contracted out benefits element) as separate benefits.
In future, all funds will be consolidated and treated in the same
way.
What does this change mean to you if you have contracted
out in the past?
Clients who were previously contracted-out will no longer have
any rebates paid into their pension plan by the Government. They
will start to build up State Second Pension (S2P) benefits from the
new tax year.
When you get to state pension age, all funds built up within a
money purchase pension arrangement, will be payable on retirement
in the same way, without the restrictions that previously applied
to Protected Rights annuities and in certain situations restricted
tax-free cash.
Clients currently considering buying an annuity with their
Protected Rights funds may wish to delay doing so until the changes
come into effect. Consolidating all their pension savings could
result in better annuity rates and a wider choice of annuities
being available.
The death benefit rules concerning Protected Rights was often
complex and difficult to follow, particularly if the deceased was
married. However, death benefits can, in future, be payable as a
lump sum regardless of marital status. It may be an appropriate
time to review death benefit nomination or expression of
wishes.