RPSM03304020 - Scheme Administrator Pages: Protecting pension rights from tax charges: Benefit payments - tax-free lump sum over 25%: Transfers out

What should I do if a member's rights are transferred into another registered pension scheme?

Protection lost

If a member transfers all of their rights to another scheme after 5 April 2006, the protection of their lump sum benefit in excess of 25% is lost. The maximum pension commencement lump sum payable from the new scheme is then restricted to 25%, the amount allowable under the rules from 6 April 2006.

Exception for block transfers

If all of the member’s pension rights are transferred to a new scheme as part of a block transfer (often when the company restructures its pension scheme or as a result of a take-over or merger) under the scheme, the member is still entitled to protection of their tax-free lump sum. RPSM03105521 tells you exactly what a block transfer is. However, broadly it requires more than one person transferring from the same pension scheme to the same pension scheme at the same time. If only one person in the scheme is transferring their benefits, it is not a block transfer.

In certain circumstances the purchase of a deferred annuity contract on the winding up of a pension scheme may be classed as a block transfer; see RPSM03105523 for the exact details.

The same rule applies if there is a subsequent block transfer after 5 April 2006. However you should note the contents of RPSM03105522 if it is intended to make a block transfer to a scheme where the individual already has a protected lump sum.

Exception for partial transfers

If a member transfers only part of their rights to another scheme after 5 April 2006 the rights being transferred out will not have lump sum protection under the receiving scheme. The rights remaining in the transferring scheme will still have protection of lump sum rights in excess of 25%. However the amount of the protected lump sum will be reduced by 25% of the value of the partial transfer out - see RPSM03105630.