The £50bn pensions bonanza

"You'll soon be able to unlock savings trapped by life insurers - John Greenwood, Sunday Times" 

10th July 2008 - Sunday Times

Millions of people with pensions stuck in paltry life insurance funds will be given the freedom to take control of their investments from October 2008. The rule change, announced by the government this month, has given savers the green light to unlock as much as £50 billion of pension money that has been tied up for years, and that many may have forgotten about.

The move affects more than 10m people who contracted out of the state second pension (S2P), formerly known as SERPS, since the option was introduced in 1988. Their national insurance contributions were then diverted into personal pensions rather than staying in the state system. It also effects hundreds of thousands more who moved final-salary schemes away from employers and until now had to invest funds with life insurers.

 "We come across high earners, particularly in the city, who want to be able to invest directly into equities and gilts, or to put all thier pension fund into hedge funds" says Lee Smythe, director of financial planning at Killick & Co. "Until this rule change came along, this was not possible but, from October, it will be. Transferring out of final-salary pensions is not for everybody but, if you do decide to switch, in a few months you will have the freedom to do so into a SIPP."

Until now, the rules classified contracted-out pension savings as well as transferred final-salary schemes as "protected rights", requiring them to be held in pension funds run by life insurers. Much of these assets are held in poorly performing with-profits or managed funds that have suffered years of below-average returns few financial advisors expect to improve.

The Department for Work and Pensions said that from October, investors would be free to invest these assets in self-invested personal pensions (SIPPS), which offer the freedom to put funds into a wider range of assets.

Posted on