Between 6 April 1988 and 5 April 2012, it was possible for schemes to contract out of the earnings-related element of the state pension by providing “protected rights” which were a form of DC benefit. Certain contributions had to be paid into a member’s DC “protected rights” account, and the pot of money that resulted had to be used in particular ways laid down in legislation on the member’s retirement or death.

This form of contracting-out was designed for DC schemes, but some DB schemes also contracted out on the protected rights basis by providing protected rights benefits as an underpin to their DB benefits.

Contracting-out on a protected rights basis was abolished with effect from 6 April 2012. Trustees currently have a statutory power to convert accrued protected rights into ordinary scheme benefits, and to remove the obsolete protected rights provisions from their scheme rules. The converted rights must retain their DC character, but can be provided on more flexible terms than the old protected rights legislation used to require. This power is exercisable by trustee resolution and must be exercised by 5 April 2018.

Schemes which were contracted-out on a protected rights basis and which have not already exercised this power should ensure that they do so by 5 April.