The Abolition of Protected Rights

Thursday, July 5, 2012

Following the abolition of protected rights on 6 April 2012, all legislative restrictions on protected rights were automatically removed. However, this did not automatically extinguish any express restrictions relating to protected rights written into the scheme rules.

For instance, many schemes holding protected rights will have express provisions limiting the use of these benefits including:

• the requirement to provide a spouse’s pension;
• the use of unisex annuity rates; and
• restrictions on transfers.

In order to remove these express restrictions, an amendment to the scheme rules is required. It may not always be possible to use the scheme amendment power because of section 67 and / or restrictions contained within the amendment provision. In this instance, trustees may use the statutory modification power under the Occupational Pension Schemes (Contracting-Out and Modification of Schemes)(Amendment) Regulations 2012 (the “Regulations”).  The Regulations give trustees a six year period, to 5 April 2018, to pass a resolution under section 68 of the Pensions Act 1995 modifying the scheme for the purposes of “removing all or part of a scheme rule which makes special provision in relation to the protected rights of members” and which is no longer required after 6 April 2012.

The statutory modification power is relatively narrow. The consultation document states that “it will not enable changes to rules governing rights which were not formerly protected rights, even if it is thought that these scheme rules were initially adopted in order to meet the requirements of protected rights legislation”.

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