RPSM03106120 - Technical Pages: Protecting pension rights from tax charges: Taking benefits before normal minimum pension age: Transfer pre 6 April 2006 – sale of employer

Transfers before 6 April 2006 as a result of a corporate sale/transfer of undertakings

[Articles 2 – 8 The Pension Schemes (Transfers, Reorganisations and Winding Up)(Transitional Provisions) Order 2006 – SI 2006/573]

Where an individual transfers benefits out of a retirement benefits scheme after 10 December 2003 normally the individual would lose the right to a protected pension age. However an individual may still be entitled to a protected pension age if they transfer benefits between two occupational pension schemes in the period 10 December 2003 to 5 April 2006 if the transfer is as a result of one or more transfers of undertakings. The transfers of undertakings must be covered by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (the TUPE Regulations).

RPSM03106130 gives details of the conditions that must be met for the individual to be eligible for a protected pension age. But broadly the conditions are

• before the first transfer of undertaking the individual must have been a member of a scheme that would give them the right to a protected pension age;
• there must be no break in membership of a pension scheme run by the individual’s employers during the various transfers of undertakings; and
• the new pension scheme receiving the transfer of pension rights must also give the member the right to take benefits before normal minimum pension age.

Where all the conditions are met the pension scheme that receives the transfer of benefits from the original pension scheme will become a protected scheme for the purposes of paragraph 22 Schedule 36. The individual’s protected pension age will be the later of

• the age of which the individual had the right to retire under the original transferring scheme, and
• the age of which the individual had the right to retire under the new receiving scheme.

Example

Fred works for ABC Ltd making widgets. On 31 December 2003 ABC Ltd sells its widgets work division to A Holdings Ltd. Fred becomes employed by A Holdings Ltd who temporarily participate in the ABC Ltd pension scheme. In June 2004 there is a management buyout of the widget division and Fred becomes employed by the new owner ABC Widgets Ltd. ABC Widgets Ltd also participate temporarily in the ABC pension scheme. Both transfers of undertakings are covered by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (the TUPE Regulations).

ABC Widgets Ltd set up a new scheme and this scheme gives members the right to take benefits before age 55. Fred joins this scheme. Later in July 2004 Fred’s pension rights are transferred from the ABC Ltd scheme to the ABC Widgets Ltd pension scheme.

Fred had the right to take benefits from age 50 in the ABC Ltd pension scheme. The ABC Widgets Ltd pension scheme gives Fred the right to retire at age 52.

Following the transfers of undertakings and the transfer of benefits the ABC Widgets Ltd pension scheme is a protected pension scheme and Fred has a protected pension age of 52.