Protected Rights

General Principles

SIPPs could accept protected rights with effect from 1^st October 2008. Subsequently legislation made the tracking of protected rights redundant. There is a setting to allow the Protected Rights tracking to be turned off.

The rest of this help file is kept for historic reference only.

Omni assumed that SIPP providers will only accept transfers of existing protected rights and will not accept ongoing rebates of National Insurance Contributions.

DWP states that the protected rights part of the SIPP fund needs to be tracked separately, which involves identifying all pension payments and allocating investment return etc. The main reasons are that the protected rights part needs to make allowance for a survivor’s pension and only non-decreasing annuities can be bought (i.e. not investment linked).

Omni assumes that Protected Rights will be invested within the same portfolio as the non-Protected Rights.

Accepting Transfers

A transfer (not in drawdown) can be partly or wholly protected rights. Such a transfer is entered as a bank transaction, posted and imported in the normal way. On the ‘Transfer Details’ screen (select ‘Members, Transfers In’ and then ‘Amend’ button), the amount of protected rights can be entered. If the whole of the transfer is protected rights, you can just double click on the Protected Rights field and the whole amount will be inserted.

Benefit Payments

Each lump sum and pension payment can have a protected rights element. It is expected that all payments will have the same percentage protected rights content. This percentage is stored on the Extra Arrangements tab of the ‘Members, Pensions’ screen. It applies to the total pension payment (across all arrangements) but is deducted from the main arrangement only (not to any ‘pre 2006 vested’ arrangement or TiDs). Omni uses this percentage when importing pension payments (or the user presses F6 when viewing the Benefit Payments tab). Simply entering the percentage on the Extra Arrangements tab will not allocate any past payments to the protected rights part of the fund.

Transfers Out

The unvested and vested protected rights elements of each transfer out of the scheme can be stored. This is important for partial transfers e.g. Pension Debits.

Annuities

Each annuity can include Protected Rights. The terms of the annuity may have to be different from other rights (spouse’s pension etc) and so it may be necessary to buy the Protected Rights annuity separately i.e. a separate bank transaction. Alternatively a combined annuity might be bought in some situations. Either way, the Protected Rights part of the purchase price of the annuity has to be stored in the panel below the ‘Arrangements’ panel. The Protected Rights values should be included in the amounts entered in the Arrangements panel except that any amounts of Protected Rights in Transfers in Drawdown should be excluded from the Protected Rights panel.

Proportionality

Legislation requires protected rights to be drawn in proportion with other benefits in the scheme to stop members depleting the protected rights more than the non-protected rights part of the fund. This principle is difficult to enforce in all situations that can arise and so Omni does not attempt to do so. The user needs to ensure that this principle is met.

Fund Splits

When the ‘fund split’ is run, Omni picks up the protected rights part of all transactions and calculates the ‘unvested protected rights fund’ and the ‘vested protected rights fund’. The protected rights part of all transactions should be entered before the fund is split and should not be amended after the fund split is stored – if the data has to be amended, the fund split should for that period should be deleted and re-run.

The ‘unvested protected rights fund’ is based on that sub-fund at the beginning of the period, plus the protected rights parts of any transfers received in the period, less any BCEs in the period and an appropriate share of the investment return.

The ‘vested protected rights fund’ is based on that sub-fund at the beginning of the period, plus the protected rights parts of any BCEs in the period, less any protected rights benefit payments, transfers out and annuities plus an appropriate share of the investment return.

The workings show the elements in the calculation of the protected rights fund. These are part of the Unvested Fund and the Normal Vested fund. The non-protected rights elements of the Unvested and Normal Vested funds is not shown, if needed these can found by taking the protected rights element from the total value. All transactions shown in the workings should be checked to ensure that the protected rights portion has been identified correctly.

Note that the protected rights is a sub fund within the normal arrangement and not a separate arrangement.

Transfers in drawdown (TiD) have to kept in separate arrangements with no new transfers or contributions. On the basis that each benefit payment will contain the same proportion of protected rights, the proportion of protected rights in a TiD fund will always be constant.

A summary of each member’s fund split is shown on the Funds tab of the ‘Members, Contributions and Funds’ screen. This includes the Protected Rights element of each part of the fund, including TiDs.