Previously it was viewed that rights intended to replace state benefits forgone – by people who contracted out of the State Second Pension – should not be subject to the risk that can arise from self-investment.
The government said it was changing the rules as Sipps came under Financial Services Authority regulation in April 2007.
Mike O’Brien, minister for pensions reform, backed the changes as encouraging more flexibility and investment choice to people with an active interest in the management of their pension fund.
In addition, all protected rights placed into Sipps will no longer have to provide a survivor’s pension from 2012.
The changes are expected to drive up demand for Sipps from employers and increase the number of providers offering them.
Keith Webster, partner at CMS Cameron McKenna, said: “One of the concerns with Sipps at the moment is that you have to separately identify protected rights and non-protected. Protected rights must provide a 50% survivors pension and one of the reasons Sipp providers might be a bit shy about going into the market is those requirements.”
Some see this concession for Sipps as bad news for small self-administered schemes (SSAS), which cannot include protected rights.
John Lawson, head of pensions policy at Standard Life, said: “This could be another nail in the coffin for SSAS. Some people, especially high earners transferring from a DB scheme, may have £250,000 or more in protected rights. Telling them they can’t self-invest it or that they have to take out a Sipp as well as a SSAS isn’t a viable proposition.” DR
