In England most employees pay into the National Insurance fund, which provides money for a worker's retirement pension. British employees have a few options to choose from when deciding how to invest their retirement pension funds, one of which is into a protected rights annuity. Protected rights annuity policies provide options for how funds should be distributed to a beneficiary upon retirement, as well as rules based on the recipient's marital status.
Protected Rights Annuities
Protected rights annuities are a type of structured annuity policy available in Britain. They are offered to British residents who are already receiving pensions through the country's State Second Pension program. Individuals receiving a State Second Pension can opt out of the program once employed, after which time pension funds are invested in a protected rights annuity. Money invested in a protected rights annuity is available to a beneficiary once he reaches his retirement.
British residents benefiting from a protected rights annuity can choose to receive a standard level annuity or an escalating annuity plan. A level annuity pays the same amount to an annuity recipient each year, while an escalating annuity increases in payment amount each year. Recipients can also choose to receive 25 percent of all pension funds deposited into a protected rights account as a tax-free lump sum as of 2006. Since 2008, the British government has allowed protected rights annuity recipients to transfer annuity funds into a private pension plan, giving an individual more control over his funds.
As of April 2010, the option to receive a 25 percent tax-free lump sum from a protected rights annuity account can be exercised until the account owner reaches the age of 55. Protected rights annuity owners who are married or have a civil partner will receive a joint-life annuity policy with their protected rights funds which provides benefits for the spouse or partner. In case the main beneficiary dies, the joint-life annuity policy transfers 50 percent of the protected rights income into a survivors pension plan for the spouse.
State Second Pension
The State Second Pension is a retirement pension plan available to British employees working for an employer who is required to make contributions to Britain's National Insurance program. The State Second Pension replaced Britain's previous retirement pension policy, the State Earnings Related Pension Scheme, in April 2002. The funds which a British employee can elect to put into a protected rights annuity come from the National Insurance contributions to a worker's State Second Pension plan.
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