RPSM03105521 - Technical Pages: Protecting pension rights from tax charges: Lump sums: Scheme specific protection: Transfers

Transfers

[Para 31(7 - 9) Sch 36] [The Pension Schemes (Block Transfers) (Permitted Membership Period) Regulations 2006 - SI 2006/498]

When benefits are transferred from one scheme to another protection of lump sum rights of more than 25% will be lost unless the transfer is a block transfer.

Lump sum protection will be retained where an individual becomes a member of another registered pension scheme as a result of a block transfer. Where there is a block transfer the legislation treats the pension scheme receiving the block transfer as if it were the original protected pension scheme. Successive block transfers can be made without affecting the member's protection

A transfer is a block transfer if it involves the transfer in a single transaction of all the sums and assets representing accrued rights under the scheme from which the transfer is made which relate to the member and at least one other member of that pension scheme. To be a single transaction

• all of the sums and assets must be transferred from the transferring scheme to only one receiving scheme. Two or more partial transfers to two or more different schemes cannot be a transfer in a single transaction; and
• the transaction must be made under a single agreement for a single transfer between the two schemes.

It is not necessary that all of the sums and assets are all physically passed from the transferring scheme to the receiving scheme on the same day - there may be legal or administration reasons why this is not possible. However they should all be transferred in relation to the agreement to transfer and within a reasonable timescale.

There is no restriction on the type of registered pension scheme receiving the transfer. So a personal pension scheme can receive a block transfer as long as the other block transfer conditions are met.

Because of the nature of the scheme a retirement annuity contract and a deferred annuity contract (section 32 policy) cannot normally make a block transfer as there is only one member in the scheme. Similarly an occupational pension scheme that only has one member, e.g. an individual arrangement, cannot normally make a block transfer as there are not enough members for a block transfer to take place. The only time a single member scheme can make a block transfer is when the conditions set out in RPSM03105523 are met.

Transferring rights for a member from one arrangement whilst retaining benefit rights in another arrangement in the scheme is a partial transfer and so cannot be block transfer. Those rights that have been transferred to the new scheme will no longer have protection. The remaining rights under the transferring scheme will retain protection, but the partial transfer will reduce the amount of the protected lump sum in the transferring scheme - see RPSM03105630.

Before the transfer, the member must not have already been a member of the registered pension scheme to which the transfer was made for longer than 12 months before the date of the transfer. If the receiving scheme was approved as a personal pension scheme and the individual was a member on 5 April 2006 any period of membership is ignored where the member’s rights before the transfer consist of only contracted out rights.

In this context a member includes not only active members, but also deferred members, pensioner members and pension credit members and covers the provision of either pension or death benefits. For example if an individual is not an active member of the receiving scheme but is a deferred member (having deferred benefits held under the scheme) and has been a deferred member for more than 12 months before the transfer is made the transfer cannot be a block transfer. The prior membership period includes all previous periods of membership of the scheme, including where benefits have been transferred out previously.