changes to protected rights

[josie gibblebucket]

With the proposed changes to protected rights that come into force in April, what will happen to your protected rights fund if you die and have not made it clear that you wish to provide a pension for your spouse? Will the DWP just get to keep the money then after you have worked for years to put it there? Will there be no automatic right to a pension for your spouse? Or will your pension provider get to keep the money? If a nomination has already been made, will this still stand now?

[Dave225]

I am sure there are others who are more familiar regarding this than I. My opinion is that a Protected Rights fund is not the property of DWP as by electing to opt out, you transferred ownership to a private Company. What happens to the money there in the event of premature death all depends on what you agreed when you set it up, very much the same as with any private pension. The only change that is occurring is the requirement to separate Protected Rights from other funds with the same Company and the compulsion to take a joint pension when you retire. The option to take a joint pension will still be avalable, if you so wish but by combining the Protected Rights with other pension funds you may be able to get a better annuity on the larger sum than by keeping them separate. if of course your pension fund is very large then you can use other options as well.

[josie gibblebucket]

Thats a bit clearer then, thanks Dave

[Dave225]

Your welcome. I only know what I know bcause my wife has a bit of both and we have been trying to get it sorted, ok paying us. We are waiting until after April 6th so she can combine the very small Protected Rights bit with a slightly larger private bit and hopefully get a bigger payout.

 

However, if your numbers justify it I suggest get professional advice as once bought, an annuity is for life and there can be a significant differenc ebtween top and bottom payers.

[CliveH]

Very true Dave - and with annuity rates at an all time low individuals should make sure the PR plan they have allows all the options.

 

Here are some of the notes from our techies - with further points from me in upper case :-

 

 

 

 

 

"Where a client is married any Protected Rights must currently be used to generate income on the client’s death, a requirement which will disappear from April 2012. The total value of benefits within the client’s available Lifetime Allowance can instead be paid as a lump sum.

 

Where this is from uncrystallised funds, the payment will be tax-free. From crystallised funds, income withdrawal will trigger a withholding tax charge.

 

Not all providers currently offer income withdrawal from Protected Rights, although it may be offered on non-Protected Rights. The April 2012 changes should open up a wider choice of income provision."

 

THEREFORE HOLDERS OF PR FUNDS SHOULD CHECK THAT THEY HOLD THEM WITH A PROVIDER THAT CAN OFFER THE FULL RANGE OF OPTIONS AVAILABLE UNDER THE NEW LEGISLATION THAT COMES INTO FORCE ON THE 6TH APRIL THIS YEAR.

 

IF YOU CONTRACTED OUT YEARS AGO WITH A PROVIDER THAT HAS SINCE BEEN AMALGAMATED INTO ANOTHER NAME I CAN VIRTUALLY BE CERTAIN THAT THE RULES FOR YOUr OLD SCHEME WILL NOT HAVE BEEN UPDATED - YOU MAY NEED TO TRANSFER TO A NEW STYLE SCHEME OR RISK SHOOTING YOURSELF IN THE FOOT.

 

"The income factors provided by HM Revenue & Customs for Protected and non-Protected Rights income withdrawals will remain unchanged. However, while income taken from crystallised Protected and non-Protected Rights currently has to be drawn proportionately from both elements, it may be increasingly important in the run up to the changes that where the client concerned is married, Protected Rights are held in a registered scheme offering income withdrawal on those rights.

 

If a married client were to die prior to April 2012, any Protected Rights fund must be used to provide income to the spouse. If the scheme does not offer income withdrawal for Protected Rights then the only option is to secure a Lifetime Annuity, which (due to age) may not be the best option for the spouse. "

 

PLEASE NOTE THE ABOVE PARAGRAPH!!!!

 

"Access to a dependant’s income withdrawal facility will avoid this problem and allow the spouse to defer, if necessary, taking any income.

 

The April 2012 changes will also affect the basis of any lump sum disposal by the scheme trustees. Where Protected Rights are paid as a lump sum on death of a person who has no surviving spouse or dependant, there is currently no discretion available to the scheme trustees as to who receives the benefit. It will instead go to the parties nominated by the member, and if there has been no nomination (or the nominated beneficiary no longer exists) the benefit will be paid to the deceased member’s estate, potentially subjecting the payment to inheritance tax.

 

Where a member dies after the changes, this restriction will no longer apply and full discretionary disposal of any lump sum from these rights becomes available.

 

The 2012/13 changes will not only affect clients with Protected Rights entitlements already in money purchase schemes. Clients who may be considering benefit transfers from contracted-out defined benefit schemes will also need to be aware of the future implications. The eventual structure and flexibility of both retirement and death benefits for the Protected Rights included in the cash equivalent need to be understood when such an important decision is taken.

 

The 2012/13 tax year is nearly upon us and many individuals will need advice to ensure they are not only aware of the implications but can make the necessary changes in order to benefit fully."

 

THIS IS A COMPLICATED AREA - TAKING ADVICE IS A GOOD IDEA.

 

(I know that this coming from an IFA - some would say "well he would say that!" (lol) - and I would agree!! - ignore this and you could lose a lot of your money :-S