Finally - an end to the protection racket that has rankled for years

Finally - an end to the protection racket that has rankled for years

It was the worst financial product I ever had. In the early 1990s I was put into a personal pension by my then employer which I naively believed was "portable and flexible". Only later did I discover that as much as 90% of my money had been taken in charges and commissions by the insurance company and that the £5,200 invested was, after seven years of rising stockmarkets, worth a paltry £2,879.

I moved the money, plus compensation I later obtained, as soon as I could and put it into a self-invested personal pension where I'd be in control. Since then it has performed relatively well.

But one thing continued to rankle with me. The insurance company, Lincoln UK (which had taken over the policy first sold by Laurentian Life), could not transfer the "protected rights" part of the pension. Government rules forbade it. But this week the government announced that from October the restriction would be lifted and policyholders will be free to move their money elsewhere.

The sums of money are far from small - some estimates suggest there is £100bn in protected rights money, much of it in duff insurance company funds, which can now be moved.

You're probably wondering what protected rights are. They are the legacy of an ill-inspired Thatcher "liberalisation" in which employees could have some of their national insurance payments rebated into a pension policy (it was called "contracting out") and lose their entitlement to the State Earnings.....continued below

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Related Pension Scheme, or, as it was later renamed, the Second State Pension. The idea was that money invested in the stockmarket, rather than held by the government, would give you a better retirement income.

There are probably millions of protected rights policies collecting dust at insurance companies. Many people, particularly those in their 40s who moved home or moved jobs in their 20s and 30s, may not even be aware they have one. The sums of money may be small, but some will be worth tens of thousands of pounds. So what should you (and I) do now? I set out to find some answers.

Step One: Gather together your pension policiesThe Pension Tracing Service at thepensionservice.gov.uk (0845 6002 537) can usually help find old pensions, and for free. It will need to know at least the name of your previous employer or pension scheme. To check if you were contracted out, call the HMRC Contracted Out Pension Helpline on 0845 915 0150. Have your national insurance number handy.

Step Two: Find out what the policy is worthMost pension companies will give you an updated valuation if you call customer services. But they will need the plan number, and ask general security questions. If you have moved home, it's better first to write with your change of address details.

Ask for both a fund valuation and a "transfer value". If the figures are the same, you are in luck - you won't be charged fees to escape. But some with-profits funds still have "market value adjusters" to sting you if you leave.