Protected Rights Pension

Published / Last Updated on 17/05/2021

What were Protected Rights? 

'Contracting Out' of SERPS/S2P ended on 5 April 2012.  This means that there is no longer any form of 'Protected Rights' within a defined contribution, company or private investment linked pension scheme.

For information though, we detail below what Protected Rights used to be:

Some of your National Insurance Contributions are used to pay for credits towards your State Pension.  In addition, some of your contributions used to also pay towards a second tier State Pension called the State Second Pension (S2P), before that this used to be known as SERPS (State Earnings Related Pension Scheme).

For most working employees, national insurance contrubutions therefore used to be used to build up TWO state pensions:

  1. The State Pension/Old Age Pension
  2. The State Second Pension (S2P), formerly SERPS (State Earnings Related Pension Scheme).

However, either via a private pension or your company pension if you had one, you (or your employer) used to be able elect to 'contract out' of the State System just for the second tier State Second Pension only and have that element of national insurance contributions rebated (i.e.  paid) into your own company or personal pension.  This used to be separately identifiable in your pension scheme as 'protected rights'.

'Contracting out' of the State Second Pension via an appropriate Personal Pension or Stakeholder Pension and for some money purchase company pension schemes was and still is known as 'Protected Rights'.  The old 'protected rights' rules that used to apply are detailed below. 

Tax Free Cash Now Allowed

Protected Rights were not allowed to be converted into tax free cash and a pension income before 6 April 2006, you could only receive an income but changes with Pension Simplification Laws in 2006 then allowed people to receive a tax free lump sum up to 25% of the fund value with the balance buying an income.

Pension Income Increases

When Protected Rights funds were converted into your pension income they used to have to be linked to increases in the Retail Prices Index but capped at:

  • 3% a year if the rebates received related to earnings prior to 5 April 1997
  • 5% a year if the rebates received related to earnings after 5 April 1997

From 2006, under Pension Simplification Laws you no longer were required to purchase an increasing income annuity and then, after 2012, the whole requirement to buy an income/annuity disappeared completely as protected rights ceased to be and were merged into normal pension rights.

Death and Protected Rights

On death AFTER the Protected Rights pension was taken by the member, the pension it provided used to have to continue at half rate (50%) to the member's spouse (as long as they had children or were over the age of 45).

On death BEFORE the Protected Rights pension is taken by the member, the whole of the Protected Rights fund used to have to provide a pension income for a surviving spouse or civil partners.

If there was no surviving spouse or partner, the Protected Rights fund could be paid as a lump sum to the estate of the member if it was not being paid as an income before death of the member.

That said, Protected Rights ceased to exist from 2012 and your whole pension, included old protected rights, are all treated as normal pension contributions.

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