Defined contribution schemes that have contracted-out of the State earnings related pension scheme (SERPS) usually have a portion of the member’s fund known as protected rights.
At retirement this fund must purchase a protected rights annuities and these are
calculated using unisex annuity rates. That is the same rates for both men and women.
Annuities purchased with a protected rights fund accrued before 6 April 1997 must provide a 50% spouse’s pension.
Annuities purchased from a protected rights fund accrued after 5 April 1997 are only required to provide a 50% spouse’s pension if the member is married when they retire. In both cases the Protected Rights annuity must be calculated using unisex annuity rates.
Following changes in the Pensions Act 2004, it is no longer mandatory to arrange a protected rights annuity with annual increases for pensions coming into payment after 6 April 2005.
Prior to these date, pre 5th April 1997 protected rights had to increase by the lesser of RPI and 3% p.a. and all benefits post 5th April 1997 had to increase by the lesser of RPI and 5% p.a. This means that protected rights annuities may be arranged with level payments.
Guaranteed Minimum Pension
Some schemes which contracted-out of SERPS before April 1997, must provide for a guaranteed minimum pension (GMP). The GMP is broadly the same pension as that which would have accrued under SERPS.
In addition to the members pension, the annuity must provide a 50% spouse’s pension. The annuity purchased in respect of service after April 1988 must also escalate by at least the rate of inflation (up to a maximum of 3% per annum). From April 2005, GMP must increase by the Lesser of RPI and 2.5% p.a.