Until 6 April 2012, members of a contracted-out money purchase scheme (or an appropriate personal pension scheme) could accrue benefits which derived from rebates on National Insurance Contributions received by the member and his employer. These benefits were known as protected rights. On the abolition of contracting-out on a money purchase basis with effect from 6 April 2012, the requirement to treat protected rights in a particular way was also abolished.
Following the abolition, while schemes were no longer required by law to recognise protected rights in their schemes (except where the protected rights were already in payment), some schemes’ rules contained provisions which hard-wired in the statutory requirements in relation to protected rights that formerly applied.
The difficulty for the trustees of an occupational money purchase scheme is that Section 67 of the Pensions Act 1995 and often their scheme’s power of amendment are likely to prevent them from making an amendment which would remove the protected rights protections from the rules.
To solve this problem, regulations were enacted which permit trustees to use the statutory modification power found in Section 68 of the Pensions Act 1995 to amend their scheme rules by resolution to remove protected rights provisions. This power may only be used until 5 April 2018.
Trustees who may be in this position should review their rules and ensure that if protected rights are hard-wired into their scheme’s rules, a resolution is passed amending the provisions before 6 April 2018.
This blog post was written by Jill Walters. For further information, please contact:
Michael Collins, partner, Pensions
T: 0121 234 0236
 Occupational Pension Schemes (Contracting-out and Modification of Schemes) (Amendment) Regulations 2012