The Government today announced that it would be removing the shackles on £100 billion of pension savings built up over the past 20 years. It said that, from October, the estimated 10 million people holding money in protected rights pension pots will be able to transfer it to self-invested personal pensions (Sipps), which offer a much wider range of options.

Protected rights funds contain the accumulated money that the Government paid to savers from 1988 onwards as an inducement to opt out of the state earnings-related pension scheme (Serps), later known as the state second pension.

Until now this money has been tucked away in a fairly narrow range of pension funds run by insurance companies, with little choice for savers. But now savers will be able to take advantage of the greater flexibility that Sipps offer and are expected to switch billions of pounds into them.

The Government had been reluctant to allow such transfers because of concerns that pension savings built up from rebates on national insurance contributions should not be exposed to the risks that could come from self-investment. But it now feels able to permit such transfers because all personal pensions, including Sipps, are regulated by the Financial Services Authority.

Tom McPhail, of Hargreaves Lansdown, the independent financial adviser, says: “These proposals are good news for investors, who will finally be able to take full control of their long-term investments.”

Mike Fosberry, of Smith & Williamson, the accountancy and fund management group, adds: “This move will have a dramatic effect on the pensions industry. On the one hand, savers will be able to get a much better deal because they will be able to gain access to the whole universe of funds and shares through a Sipp, as well as a number of other investments, such as commercial property and exchange-traded funds. On the other hand, insurance companies, which have enjoyed a fairly captive audience of protected rights savers, will now have to fight hard to keep their custom.”

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