FOR FINANCIAL ADVISERS ONLY

FOR FINANCIAL ADVISERS ONLY

Consumer
Share

Block Transfers

This article explains what a block transfer is and how it can protect tax-free cash and early retirement ages when pension rights are transferred between pension schemes.

Some individuals will have a right to take more than 25% tax-free cash and/or have the right to take benefits under a Scheme earlier than the normal minimum pension age of 55. It is possible to transfer from one scheme to another and protect these rights. However, the transfer must be conducted as a ‘block transfer’.

What is a Block Transfer?

A block transfer must be a transfer of two or more people at the same time from one pension scheme to a new pension scheme. The transferors cannot have been a member of the new pension scheme for more than 12 months before the date the transfer takes place.

Although a block transfer is needed to protect a members tax-free cash and/or early retirement age, it should be noted that other participants of the block transfer process do not need to have protected amounts as part of their schemes.

HMRC has clarified that it is not necessary to physically transfer all the sums and assets on the same day – there may be administrative reasons why this is not possible. However, they should be transferred in relation to the agreement to transfer and within a reasonable timescale.

It is possible to block transfer to an Occupational Pension Scheme, a Personal Pension or Stakeholder Pension Scheme. A block transfer to a Section 32 is not possible as each section 32 is a scheme in its own right (however, see winding up alternative below).

What happens if there is only one member in the transferring scheme?

Single member occupational schemes or a section 32 contract being a single member arrangement cannot make a block transfer.

However, there is an alternative option for such individuals that involves the protected scheme winding up.

Alternative to a block transfer – Scheme Wind Up

Where a member's benefits are transferred as part of a scheme wind up, their right to protected tax-free cash and early retirement age will be maintained.

The transfer will be treated as if it were a block transfer if:

  • The pension scheme being wound up was an:
    – occupational pension scheme, or
    – a Section 32 (deferred annuity contract)

And,

  • The receiving scheme is:
    – a Section 32, or
    – a policy assigned to the member.

The section 32 or assigned policy must not allow the immediate payment of benefits or the making of unauthorised payments.

It is important that the transfer is instigated by the decision to wind up the scheme. Scheme rules normally contain provisions stating what can trigger a scheme wind up.

Pension transfers that will maintain protection

From

To

Keep protected TFC and or protected pension age?

Personal pension

Personal pension

Y  As long as block transfer conditions** met.

Personal pension

S.32

N   Can’t meet block transfer conditions.

Personal pension

OPS*

Y   As long as block transfer conditions** met.

S.32

Personal pension

N

S.32

S.32

Y   Scheme is winding up – meets transfers and reorganisation regs. Does not matter when original S.32 was set up.

S.32

OPS

N

OPS

Personal pension

Y   As long as block transfer conditions** met.

OPS

S.32

Y   As long as OPS is winding up.

OPS

OPS

Y   As long as block transfer conditions** met


* Occupational Pension Scheme.
** Block transfer conditions: 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 relates to the member and at least one other member of that pension scheme. 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. The only exception to the 12 month eligibility period of scheme membership applies to members of personal pension schemes prior to 6 April 2006, where membership of the scheme was in respect of receipt of contracted-out rebate monies only.

Issues to consider

Assignment on leaving employment

Some occupational schemes offer the option of assigning an earmarked policy across to the member on leaving service. Where this is a function of the scheme winding up the protection will be maintained. However, where the Scheme isn’t winding up the assignment will cause the protection to be lost.

Protected early retirement age

So long as a member takes all benefits from the scheme at the same time they will continue to benefit from a low retirement age for all their benefits. However, the protection will be lost if the individual is employed by certain persons. Further detail is available on theHMRC website.

Protected tax free cash

An individual can only hold one protected tax-free cash lump sum within a registered pension scheme no matter how many arrangements are set up in that scheme. Therefore it is not possible for a block transfer of protected tax-free cash to be made to a scheme that has protected tax-free cash exceeding 25%. Care as to how transfers are made is vital to avoid any loss of protected lump sums.

 

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

Financial Adviser Verification

The content of this site is for advisers only. It is not for the use of Hong Kong advisers. You can change the regional content by selecting a region from the drop down box in the top right-hand corner.