Transferring a pension scheme (2022)

Transfer of sums/assets held by registered pension schemes and insurance companies may take place where those sums/assets represent pensions in payment.

The Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006

When a member's crystallised rights are transferred from Scheme A to Scheme B, the scheme administrator of Scheme A must provide the scheme administrator of Scheme B with a statement showing the total percentage of lifetime allowance used up by the member under the scheme. This must be provided within 3 months of the transfer.

The Registered Pension Schemes (Provision of Information) Regulations 2006

Scheme Pension & Dependant's Scheme Pension

Where a scheme pension is in payment, a transfer of the sums/assets can take place providing the transfer value is used to provide a new scheme pension (i.e. it must be the same as the originating type on a 'like for like' basis). If the transfer is made on a 'like for like' basis, the member is not subject to a further benefit crystallisation event and is not able to take a further pension commencement lump sum.

A new scheme pension may be lower than the original pension in so far as the reduction reflects reasonable administration costs relating to the transfer. This is a permitted reduction. It is also permissible where the new scheme pension is payable until the later of the member's death and the end of a term certain (pension payment guarantee), for this term certain to end earlier than the one under the original pension scheme.

Where the transfer ofsums / assetsrelating to scheme pensions does not meet the requirements under the regulations, the transfer is treated as an unauthorised payment made by the registered pension scheme that purchased the original scheme pension.

A transfer of sums/assets from adependant's scheme pensionbetween registered pension schemes is only treated as being a recognised transfer if those sums/assets are applied for the provision of a new dependant’s scheme pension.

Where the dependant’s scheme pension is being paid by an insurance company the amount transferred is treated as an unauthorised payment (made by the registered pension scheme that purchased the original dependant's scheme pension) if a new dependant's scheme pension is not provided.

HMRC Pension Tax Manual PTM107000

Transfer of Lifetime annuity

As with scheme pension, a transfer of the sums/assets can take place providing the transfer value is used to provide a new lifetime annuity (i.e. it must be the same as the originating type). The member is not subject to a further benefit crystallisation event and is not able to take a further pension commencement lump sum.

For a lifetime annuity, the conditions on transfer relate to the extent of the sums/assets applied to purchase the new lifetime annuity, which can be no greater than those transferred. This means it is possible, for example, to transfer from a variable annuity to aninvestment linkedannuity and vice versa.

Where the transfer of sums/assets relating to lifetime annuities does not meet the requirements under the regulations, the transfer is treated as an unauthorised payment made by the registered pension scheme that purchased the original lifetime annuity.

Transfer of dependant’s annuity - entitlement arose after 6 April 2015

Following the transfer of a dependant’sannuitythe new insurance company should also pay a dependant’s annuity. If this is not the case the scheme that provided the sums and assets to purchase the original dependant’s annuity is treated as having made an unauthorised payment. The amount of the unauthorised payment will be the total of the sums and assets transferred that were not used by the new insurer to provide a dependant’s annuity. Please note different rules apply to dependant’s annuities that arose before 6 April 2015.

Transfer of dependant’s annuity - entitlement arose before 6 April 2015

If thedependantbecame entitled to the original dependant’s annuity before 6 April 2015 the terms of the new annuity contract should not be capable of providing for decreases in the amount of the annuity other than those provided for by regulations. If the terms of the annuity contract are capable of providing for such decreases the new annuity is not a dependant’s annuity and the amount transferred would be an unauthorised payment.

In this context becoming entitled to the original dependant’s annuity before 6 April 2015 includes any of the following:

  • the dependant became entitled to the transferring annuity before 6 April 2015;
  • the transferring annuity derives from a transfer, or chain of transfers, relating to a dependant’s annuity to which thedependantbecame entitled before 6 April 2015;
  • the transferring annuity was purchased together with a lifetime annuity and the member became entitled to the lifetime annuity before 6 April 2015. A dependant’s annuity is purchased together with a lifetime annuity if the dependant’s annuity is related to the lifetime annuity;
  • the transferring annuity derives from a transfer, or chain of transfers, relating to a dependant’s annuity that was purchased together with a lifetime annuity to which member became entitled before 6 April 2015.

Post April2015, an annuity contract is regarded as being capable of providing decreases to the annuity not only if this is explicitly provided for in the contract, but also if the contract terms allow for a future variation to be made to allow such annuity decreases.

Transfer of dependant’s, nominee’s and successor’s short-term annuities

Following thetransferthe new insurance company should provide the same type of annuity. So a dependant’s short-term annuity should followtransferof a dependant’s short-term annuity, a nominee’s short-term annuity should followtransferof a nominee’s short-term annuity and a successor’s short-term annuity should followtransferof a successor’s short-term annuity. If this is not the case the scheme that provided the sums and assets to purchase the original short-term annuity is treated as having made an unauthorised payment. The amount of the unauthorised payment will be the total of the sums and assets transferred that was not used by the new insurer to provide a dependant’s/nominee’s/successor’s (as appropriate) short-term annuity.

HMRC Pension Tax Manual PTM106000

Short-Term Annuity

A transfer is only allowed if another short-term annuity is provided. It is then treated as the original annuity for the purposes of Pension Rule 1 (retirement age and ill health).

Drawdown

The transfer of drawdown funds changed significantly with the introduction of the Taxation of Pensions Act 2014.

There are now various types of drawdown funds, including:

  • member's drawdown pension fund (Capped drawdown established before 6 April 2015)
  • dependant's drawdown pension fund (from a Capped drawdown
    established before 6 April 2015)
  • member'sflexi-access drawdown fund
  • dependant'sflexi-access drawdown fund
  • nominee'sflexi-access drawdown fund
  • successor'sflexi-access drawdown fund,

In respect of a Capped drawdown fund established prior to 6 April 2015 a transfer from that arrangement (“the old arrangement”) to a new drawdown arrangement can only take place ifallof the sums/assets become held under a new drawdown arrangement that holds no other sums or assets ("the new arrangement"). If this is not the case, the transaction is not a recognised transfer.

Essentially this means, whilst it is possible to use part of a drawdown fund to buy a lifetime annuity or scheme pension, it isnotpossible totransferpart of an existing drawdown arrangement to a new drawdown arrangement. This legislative requirement applies to all types of drawdown transfer (ie capped, dependant’s, flexi-access etc listed above).

NB although some schemes may create several drawdown “arrangements” for the same client, perhaps through phased retirement transactions, they may apply stricter rules, eg their plan conditions may state all of a member’s drawdown plans and arrangements held in their scheme must be transferred out at the same time and to the same pension scheme.

Where the sums/assets are transferred to such a new arrangement, they are treated as remaining under the original arrangement on a "like for like" basis.

Forexampleif a Capped drawdown is transferred it must be transferred to a new Capped drawdown arrangement, the new arrangement will be treated as if they had remained within the old arrangement for the purposes of:

  • determining the pension year,
  • determining the GAD review dates, and
  • the annual amount of the relevant annuity (Max GAD)

Therefore, sufficient information (e.g. maximum pension, review dates etc) has to be obtained/provided in the case of an existing drawdown member transferring into another drawdown contract. See ourDrawdownarticle for more on drawdown transfers.

In respect of Capped drawdown (plans arranged prior to 6 April 2015), if requested by the member or if the max GAD limits are breached, the plan will be converted to aflexi-access drawdown arrangement. The above also applies to dependant’s drawdown.

Finance Act 2004 Sch 28, Part 1 ss8
Finance Act 2004 Sch 28 Part 2 para 22

The member is not subject to a BCE in relation to the new drawdown arrangement nor are they entitled to any further PCLS. The provider would want to know details of the benefit crystallisation event, being the percentage LTA used and the amount that crystallised under BCE1. If the member subsequently purchases a lifetime annuity, scheme pension, or transfers to a Qualifying Recognised Overseas Pension Scheme (QROPS) a BCE 2, 4 or 8 is triggered, which is reduced by the amount previously crystallising under BCE1.

Further information on the LTA aspects of drawdownarein theLifetime Allowance article.

Section 169(1) of Finance Act 2004

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