Protected Rights Growth?

Aurora_Blue

Hi all Good morning.

I have some questions concerning the now obselete "Protected Rights Pension". I paid into a pension 20 years ago and opted out of SERPS. My current pension with exactly the same original provider is split into two parts: Protect rights and Non Protected rights even though that no longer exists. I clearly understand that the part that is "protected" could grow or increase in value at that time (98 to 2012) but could not decrease in value as it was classed as "Protected rights". However, is that still the case? I still receive annual statements showing the 80/20 split and it appears that the 80% protected rights bit increases annually so I am assuming it does still grow.

What I don't understand is I have read on several pension advice websites that it could not decrease in size. Does this mean it can never decrease in size below the original "Principal Sums" paid in under protected rights when opting out of SERPS between 98 and 2012 no matter how much it has increased in value or... does it mean it can never decrease EVER. ie even if the protected rights part grows TODAY under the current system due to gains in the stock market, it can now never decrease in value below that new growth point?

As an example:
PRINCIPAL paid in year 98 - £2000 (Protect Rights and opted out of SERPS).
CURRENT PROTECTED RIGHTS £10,000 in 2017
NON Protected Rights £3000 in 2017
FUND VALUE £13,000 in 2017

Does this mean I can never loose my original £2000 no matter what happens or I can never loose the £10,000 it has grown into which is currently labled "Protected rights"?

Apologies for the explanation but terminology amd changes in rules makes things more difficult.

Your advice is greatly appreciated.

Aurora Blue

dunstonh

My current pension with exactly the same original provider is split into two parts: Protect rights and Non Protected rights even though that no longer exists.

With legacy plans built with old software, most providers kept the split but just renamed the protected rights pot as former protected rights. The cost of adjusting the software on those plans is too high.

I clearly understand that the part that is "protected" could grow or increase in value at that time (98 to 2012) but could not decrease in value as it was classed as "Protected rights".

Protected rights fluctuated in the same way as non-protected rights.

What I don't understand is I have read on several pension advice websites that it could not decrease in size.

That is not correct.

Aurora_Blue

Good mornng Dunstonh.

Thank you for your reply.

It turns out you are 100% correct on points one and two. I rang my Pension provider and asked why the plan was split into two categories if "Protected rights" no longer exists and they replied the software was old. They also said that although on paper it appears as "protected rights" and "non protected rights" thats meaningless as its all in the same pot now and as you stated, will fluctuate in value both up and down.

I then asked if anything of the protected rights was historically protected (like grandfather rights) and was advised "no" and that "nothing is now protected" even if it was in the past. Is this correct to the best of your knowledge?

In terms of point three, that at some point in time in the past "Protected Rights" could not decrease in value seems to be correct but this is only what I have been told. It may be the case that was an illusion too and it was just a nice sounding phrase to calm peoples fears at that time.

It would appear that with the stroke of a pen, what one government put into force and law to protect those who opted out SERPS pensions, has now been removed by a later government providing absolutely no protection for those "opted out funds" that were protected for a reason. This now removes any responsibility of pension funds to ensure there is enough money in 'any pot'. I'm starting to think that pension funds are absoltely no different to Mr Maxwell and Mr Green. The pen truly is mightier than the sword!

Hopefully some future Civil Aviation Authority won't remove the legal requirement to ensure "all cargo is securely tied down" and that "airlines will no longer be required to provide seat belts"!

Thanks again for your advice and help.

Aurora Blue

dunstonh

I then asked if anything of the protected rights was historically protected (like grandfather rights) and was advised "no" and that "nothing is now protected" even if it was in the past. Is this correct to the best of your knowledge?

Protected rights never had any protection in terms of the value of the investment. The term "protected" referred to the fact it came from SERPs/S2P and had to buy an annuity in a certain way (had to include 50% spouse and indexation with a 5 year guarantee and couldnt be accessed before age 60 - It also had to use insured funds and could not use other types of investment. Insured funds give 100% FSCS protection. These things were watered down over the years. Most noticeably in 2006).

It would appear that with the stroke of a pen, what one government put into force and law to protect those who opted out SERPS pensions, has now been removed by a later government providing absolutely no protection for those "opted out funds" that were protected for a reason.

Opt out means something different. You mean contracted out.

As there was no protection beyond the normal for money purchase pensions, there was nothing to remove. The changes in 2006 to protected rights were great news and made contracting out viable again (until it was abolished).

his now removes any responsibility of pension funds to ensure there is enough money in 'any pot'. I'm starting to think that pension funds are absoltely no different to Mr Maxwell and Mr Green. The pen truly is mightier than the sword!

That is not how money purchase pensions work.

The pension company is just an administrator. The investments you hold belong to your pension. Not the insurance company. The insurance company can do nothing with the money or investments in the pension.

There is no comparison with Maxwell and Green. Totally different types of pension. BHS issues were also very different to Maxwell. And indeed, BHS pension holders have a lot to thank for what happened with Maxwell and the protections that were brought in because of it.

Pensions are a complicated subject. There are over 13 different types of pension schemes. If you are going to read up on the subject then it is important that you do not mix plan types up. Or terminology getting used incorrectly or jumping to conclusions. This will lead to misinformation and misunderstanding.