The government announced recently a change to the way in which pension money can be unlocked. It is believed that there may be up to 50 billion pounds in these pensions that will be accessible by the policy holders when the new legislation comes into effect in October.
The new unlocking rule regards pensions formerly known as Serps where those opting out of the state pension system were allowed to have a proportion of their national insurance contributions paid into personal pension schemes.
This option, first introduced 20 years ago, will affect many people who moved final salary schemes away from employers, perferring to invest their funds life assurance policies.
“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.”
The department of work and pensions has decreed that as from October pension holders will have the choice of moving their funds ( unlocking their pensions ) into Sipps, so allowing a greater freedon of investment.
As with releasing funds from a personal or occupational through the traditional method of pension release – taking a tax free cash sum and deferring the remaining payments – this pension unlocking will not suit all investors as many life insurers have well managed funds with varied portfolios which can be cheaper to manage than a Sipp. Certainly though the massiely increased flexibility of Sipps will attract many investors to unlock their pensions. One should be aware also of unforseen additional costs involved with transfers before committing to cashing in their Serps for Sipps.