What Stephen Should Know about Commencing Benefits from his Personal Pension Scheme, including Protected Rights.

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Stephen is about to start taking benefits from his personal pension scheme, which includes protected rights. Let's break down the options one by one:

A. He can take up to 25% of the total fund as a pension commencement lump sum

This option is correct. Stephen has the right to take up to 25% of the total fund as a tax-free lump sum, also known as the pension commencement lump sum (PCLS). The remaining 75% of the fund must be used to provide a regular income for Stephen during his retirement.

B. He has the right to exercise the open market option

This option is not directly related to protected rights, but it is still an important right that Stephen should be aware of. The open market option (OMO) allows him to shop around for the best annuity rate when he is ready to convert his pension fund into a regular income. By exercising the OMO, Stephen can potentially get a better annuity rate and therefore a higher income during his retirement.

C. His whole pension fund must provide limited price indexation in payment

This option is not correct. While some pension schemes may offer limited price indexation, it is not a requirement for all schemes. Price indexation is the process of increasing the value of pension payments over time to account for inflation. If Stephen's pension scheme does offer limited price indexation, it means that his pension payments will increase each year, but by a fixed amount rather than by the full rate of inflation.

D. The value of the protected rights element will not count towards the lifetime allowance

This option is correct. The lifetime allowance is the maximum amount of pension savings that an individual can accumulate over their lifetime without incurring tax penalties. Protected rights are a type of pension benefit that was accrued from contracting out of the State Earnings-Related Pension Scheme (SERPS) or the State Second Pension (S2P). The value of protected rights does not count towards the lifetime allowance, so Stephen can take his protected rights without worrying about exceeding the lifetime allowance.

I hope this explanation helps!