As you have no doubt been advised by your pension provider, with effect from April 2012 the Government is abolishing contracting out of the State Second Pension (S2P) (formerly State Earnings Related Pension SERP’s) and altering how the existing Protected Rights pension benefits that have accrued via contracting out are treated.
If you are currently contracted out via your private personal pension, the Department of Work & Pensions are crediting your contracted out contributions to this pension. This will cease with effect 5 April 2012 and future contributions will be used to build up entitlement to additional state pension from 6 April 2012.
The benefits already accrued, and any further payments received relating to tax years prior to 5 April 2012, will remain invested with your pension provider. Please note the value of these funds will continue to alter in accordance with stockmarket conditions (depending on the fund into which monies are invested) and charges will continue to be deducted.
The Government has also announced that the benefits accrued will no longer be treated differently to Non Protected Rights pension benefits (benefits arising from either personal or employer contributions).
Currently, if purchasing an annuity at retirement, Protected Rights pension benefits must purchase a 50% spouse’s/registered partner’s pension (if applicable) and cannot have a guarantee period in excess of 5 years.
With effect from 6 April 2012, there will not be any stipulation regarding the way in which benefits are purchased. These monies can be used to purchase single or joint life annuities, with or without guarantee periods.
In addition, the benefits arising on death prior to retirement will also alter. At present Protected Rights pension benefits must be used to provide a pension for a surviving spouse/registered partner. With effect 6 April 2012 a return of fund will be available for Protected Rights pension benefits, as is the case currently for Non Protected Rights pension benefits.
Whilst your pension provider may still retain your Non Protected Rights pension benefits separately from your Protected Rights pension benefits, and all companies will differ, there will be no difference in terms of the flexibility of these monies at retirement or on death.
The above changes are mandatory and we confirm no action is required from you. If, however, you wish to discuss the ongoing investment of your pension benefits or have any queries regarding the content of this correspondence, please do not hesitate to contact us.