RPSM03104091 - Technical Pages: Protecting pension rights from tax charges: Enhanced protection: Cessation

Cessation of enhanced protection - permitted transfers to a defined benefits or cash balance arrangement

A transfer of all or part of the sums and assets, or rights, under an arrangement to a cash balance arrangement or defined benefit arrangement made under a registered pension scheme or a recognised overseas pension scheme will be a permitted transfer if

• the benefits are transferred from a cash balance arrangement or defined benefits arrangement made under a registered pension scheme, and
• the transfer is made in connection with one of the following three situations

Relevant business transfer

A relevant business transfer is

• a transfer of all or part of a business or undertaking from one person to another that involves at least 20 employees, and
• if both parties to the business transfer were companies they would not be treated as members of the same group for the purposes of chapter 4, part 10 ICTA 1988.

For example ABC bank plc sells its credit card division to XYZ banking Ltd. The credit card division has 100 employees at the time ownership transfers. On the transfer of the business these 100 individual cease to be employees of ABC bank plc and become employees of XYZ banking Ltd. Following the sale of the credit card division those employees with benefits in the ABC scheme have them transferred to the XYZ scheme. Both schemes provide defined benefits arrangements. For the purposes of the earnings recalculation test for relevant benefit accrual the earnings with XYZ banking Ltd can be used.

Retirement-benefit activities compliance exercise

The registered pension scheme making the transfer is an occupational pension scheme and has some members who only have the prospective right to pension and/or lump sum death benefits. In order to comply with section 255 Pensions Act 2004, or article 232 Pensions (Northern Ireland) Order 2005 those members whose rights consist only of prospective (lump sum and/or pension) death benefits need to be removed from the scheme.

This may be done by removing those individuals whose rights consist solely of prospective death benefits. Alternatively a scheme may choose to completely separate all death benefit provision into another registered pension scheme (or recognised overseas pension scheme) leaving only pension rights under the transferring scheme.

Where sums and assets, or accrued rights, are transferred to another cash balance or defined benefits arrangement as part of a transaction so that the transferring scheme can comply with either section 255 or article 232 this will be a permitted transfer. This is subject to the proviso that the arrangement receiving the sums and assets, or accrued rights, provides similar prospective death benefits that relate to the same employment as the old arrangement.