Find out the types of schemes Guaranteed Minimum Pension (GMP) and post 1997 COSR rights can be transferred to.
Employee’s right to a transfer value
Any employee who has left pensionable service under a Contracted-out Salary Related (COSR) or former COSR scheme has the right to a transfer value if:
- pensionable service ended more than one year before the scheme’s normal pension age
- there are accrued rights to benefit under the scheme
The rights to a transfer are set out in Part 4ZA of the Pension Schemes Act 1993 and apply equally to those in a former contracted-out scheme and those in a scheme which was never contracted-out.
Types of schemes Guaranteed Minimum Pension (GMP) and post 1997 COSR rights can be transferred to
GMP rights and post 1997 COSR rights built up in a formerly contracted-out salary related scheme may be transferred to:
- another former COSR scheme, where the contracted-out rights (GMP or COSR rights) are preserved in the receiving scheme
- an Occupational Pension Scheme that was never a salary related contracted-out scheme
- a Personal Pension Scheme
- an overseas scheme or overseas arrangement
Contracted-out rights can be split and transferred to different destinations, provided each is one of the alternatives.
GMP and post 1997 COSR rights bought-out by means of an insurance policy or annuity contract may also be transferred. The requirements for transferring GMP and COSR rights are contained within the Contracting-out (Transfer and Transfer Payment) Regulations 1996.
Consent to a transfer
Pension Scheme administrators must usually get the employee’s written consent before a transfer takes place.
However, you can make a connected employer transfer without the employees’ consent where:
- both schemes relate to previous COSR employment with the same employer
- the schemes relate to employees who have been in COSR employment with different employers and the member is one of a group of persons who are being transferred to the receiving scheme and one of the following applies:
- the transfer or transfer payment is a consequence of a financial transaction between the employers
- each of the employers is one of a group of companies consisting of a holding company and one or more subsidiaries within the meaning of section 1159(1) of the Companies Act 2006(e)
- the transferring scheme must be satisfied that the rights in the new scheme are broadly equivalent to the rights transferred
You can make a transfer without the employee’s consent, if the employee is:
- an active member of the scheme, a transfer value on termination of pensionable service with the receiving scheme will apply to the rights built up in the first scheme
- a deferred member of the scheme, the member acquires an immediate right to take a cash equivalent from the receiving scheme (or insurance policy)
Transfer to a former COSR scheme where contracted-out rights are preserved in the receiving scheme
You can make a transfer to a former COSR scheme where the contracted-out benefits are preserved in the receiving scheme if the employee:
- consents in writing
- is employed by an employer who is a contributor to the receiving scheme
- has previously been a member of the receiving scheme
Transfer GMP rights
The scheme accepting the transfer must provide for:
- pensions to be payable at the same rates at which the GMP would have been payable if there had been no transfer
- the conditions of payment relating to its own GMPs to apply equally to such pensions and lump sum payments
GMP revaluation on transfer
The receiving scheme must revalue the GMP rights accrued up to 5 April 1997. There are no restrictions as to whether fixed, limited or Section 148 revaluation can be applied, unless:
- a transfer has previously taken place, but the rules of the transferring and receiving schemes may impose restrictions
- the termination date is on or after 6 April 1997, in which case limited rate revaluation is not an option
Previous transfer with Section 148 revaluation
If a transfer has previously taken place with section 148 revaluation and GMP rights are transferred again, the periods linked by section 148 transfers are treated as one. The later transfer can be treated as a first transfer.
Previous GMP transfer with fixed or limited rate revaluation
If a transfer of GMP rights has previously taken place with the revaluation at fixed or limited rate and pension rights are transferred again, the new scheme must either:
- revalue the previously transferred rights at the same rate
- choose to change the rate of revaluation being applied to previously transferred rights from fixed or limited rate to section 148 (the section 148 rate must be used from the earlier termination date)
Any Limited Revaluation Premium (LRP) paid is refunded.
Transfer post 6 April 1997 COSR rights
The scheme accepting the transfer must apply the transfer payment to provide rights for the employee as if they had accrued those rights in the receiving scheme.
Transfer of liability for payment of pensioner’s GMP and post 6 April 1997 COSR rights to a former COSR scheme
The liability for payment of a GMP and post 1997 COSR rights on maturity may be transferred to a former COSR scheme if the receiving scheme provides for the pension to:
- commence from the date from which it has accepted liability to pay
- be subject to the same conditions as GMP and post 1997 COSR rights built up in the receiving scheme
Transfer to an Occupational Pension Scheme that was never a salary related contracted-out scheme
Where GMPs or post 6 April 1997 rights are transferred to an Occupational Pension Scheme that was never a salary related contracted-out scheme:
- the member must receive a statement of the benefits to be provided in the receiving scheme and must acknowledge in writing that:
- they accept that the benefits the receiving scheme provide may be in a different form and, or a different amount than those which would have been payable in the transferring scheme
- there is no statutory requirement to pay survivor’s benefits out of the transfer payment
If GMP rights are transferred, the transfer payment must be of an amount at least equal to the cash equivalent of the employee’s accrued rights to GMP. Any LRP paid is refunded.
Transfer of liability for payment of pensioner’s GMP and post 6 April 1997 COSR rights to a scheme that was never a salary related contracted-out scheme
The transfer of liability for, or a transfer payment in respect of, a GMP and post 1997 COSR rights on maturity may be transferred from an Occupational Pension Scheme to another Occupational Pension Scheme (which is not an overseas scheme or overseas arrangement) if:
- there is an assessment period in relation to the scheme
- a regulated apportionment arrangement has been entered into in relation to the scheme
- the member consents to the transfer in writing
- the member must receive a statement of the benefits to be provided in the receiving scheme, and must acknowledge in writing to the transferring scheme that they accept that the benefits the receiving scheme provides may be in a different form, and of a different amount than those which would have been provided by the transferring scheme
- there is no statutory requirement on the receiving scheme to pay survivor’s benefits out of the transfer payment
- GMP rights are transferred, the transfer payment must be of an amount at least equal to the cash equivalent of the employee’s accrued rights to GMP
- any LRP paid is refunded
Transfer to a Personal Pension Scheme
A transfer of GMP or section 9(2B) rights may be made to a Personal Pension Scheme, if:
- the individual consents in writing
- has acknowledged in writing to the transferring scheme that they have received a statement from the receiving scheme showing the benefits to be awarded in respect of the transfer payment
- they accept that:
- the benefits to be provided by the receiving scheme may be in a different form and of a different amount to those which would have been payable by the transferring scheme
- there is no statutory requirement on the receiving scheme to provide for survivor’s benefits out of the transfer payment.
If GMP rights are transferred the transfer payment must be of an amount at least equal to the cash equivalent of the employee’s accrued rights to GMP. Any LRP paid is refunded.
Transfer to an overseas Occupational Pension Scheme or overseas arrangement
GMP rights accrued prior to 6 April 1997 and COSR rights (section 9(2B) rights) accrued from 6 April 1997 can be transferred to either an overseas:
- Occupational Pension Scheme
The Exporting Scheme has responsibility for operating all overseas transfer arrangements.
For GMPs, the transferring scheme must provide that the transfer payment is of a cash value at least equivalent to the GMP rights.
A transfer payment of GMP or post 1997 COSR rights to either an overseas occupational scheme or overseas arrangement may be made if the:
- employee consents in writing
- trustees of the transferring scheme have taken reasonable steps to satisfy themselves that:
- if the receiving scheme is an Occupational Pension Scheme, the employee is in employment related to the receiving scheme
- the employee has acknowledged in writing that the scheme or arrangements to which the transfer payment is to be made may not be regulated by UK law – consequently, there may be no obligation under that law on the receiving scheme or arrangement or its trustees or administrators to provide any particular value or benefit in return for the transfer payment
- the employee has received a statement from the receiving scheme or arrangement showing:
- the benefits to be awarded for the transfer payment
- any conditions on which these could be forfeited or withheld
- the transfer meets the requirements of the Finance Act 2004
Splitting the GMP and, or post 1997 COSR rights
A scheme may restrict any transfers to rights built up after 5 April 1988 where an employee leaves a former COSR scheme voluntarily, without leaving the employment.
The GMP built up:
- before 6 April 1988, will normally be:
- retained in the scheme, unless the trustees agree to a transfer
- revalued in the line with the scheme’s chosen rate of revaluation
- after 5 April 1988, can be:
- bought-out through an insurance company as a GMP
When the employment ends, the employee can transfer any pre 6 April 1988 GMP retained in the scheme.
Pension rights accrued from 6 April 1997 may be split from those accrued up to 5 April 1997 and transferred in different directions.
Refund of an LRP
An LRP is refunded by Services to Pensions Industry if:
- a receiving scheme chooses to change the revaluation rate of previously transferred GMP rights from limited to Section 148
- GMP rights have previously been preserved in a scheme at the limited rate and a transfer at the fixed or Section 148 rate then takes place
- the date of leaving contracted-out employment is 6 April 1997 or later
An LRP is refunded by Services to Pensions Industry. You should follow the guidance for requesting a transfer in Countdown Bulletin 32.
The refund is made to the scheme making the transfer.
Buy out rights
As an alternative to providing a GMP and post 1997 COSR rights, rather than providing a pension, schemes can buy an insurance policy or annuity contract for their members. This can be arranged on or after termination of pensionable service.
In addition, any employee terminating pensionable service on or after 1 January 1986 has the right, subject to conditions, to opt for the accrued pension rights, including GMP or post 1997 COSR rights, to be bought-out. A widow’s, widower’s or surviving same sex spouse pension rights may also be bought-out.
Conditions for a buy out
The policy or annuity contract must satisfy all of the following conditions. It must:
- be bought from or entered into with an insurance company which:
- meets specific statutory requirements
- assumes an obligation to pay the pension rights to the employee or widow or widower or surviving civil partner, or to the trustees of a trust for their benefit (where GMP rights are involved, provide a pension at GMP payable age (age 60 for women and 65 for men that is at least equal to the GMP), where post 1997 COSR rights are involved, provide a pension at age 65)
- provide for the occupational pension to be revalued by the appropriate rate, if purchased before the employee reaches GMP payable age
- provide for a GMP, or that part of it built up from 6 April 1988, to be inflation-proofed after it becomes payable
- ensure that the GMP and COSR rights are only paid as a lump sum or transferred if the relevant conditions are satisfied
- have been bought, or a contract entered into, at the request or with the consent of the employee, widow or widower or surviving civil partner unless the buy-out took place before January 1986, or either the:
- scheme is wound-up
- circumstances in which a buy out without consent apply
Schemes using section 148 revaluation can change the revaluation rate to fixed rate for members whose GMP rights are being bought-out.
Buy out without consent
Former COSR schemes can buy out GMP or post 1997 COSR rights without consent if all of these additional conditions are satisfied:
- it is more than 12 months since the employee’s service terminated
- the scheme gives the employee written notice of their intention at least 30 days before the buy out is due to be made
- when the buy out takes place there is no outstanding written application for a transfer value
A widow’s, widower’s or surviving civil partner’s accrued pension rights may also be bought-out.
Transferring bought-out GMP or post 1997 COSR rights
Pension rights bought-out by means of an insurance policy or annuity contract may be transferred to:
- another insurance policy or annuity contract
- a former COSR scheme
- an Occupational Pension Scheme that was never a salary related contracted-out scheme
- a Personal Pension
- an overseas Occupational Pension Scheme or arrangement
Pension sharing on divorce
Legislation came into force on 1 December 2000 which allows divorcing couples the option to share their pension assets as part of the overall divorce settlement. It was extended to civil partnerships from 5 December 2005.
It is possible to share most types of occupational and personal pensions. However, the only part of the new State Pension (introduced on 6 April 2016) that is now available for sharing is the protected payment.
The protected payment is an amount over and above the full rate of the new State Pension.
Legislation requires pension schemes or providers to give specific information to the member or the court when requested, including a valuation of the accrued pension benefits. Schemes can obtain GMP calculations to help in their valuations by using HMRC’s GMP checker service.
Once a couple, or the courts, decide to go ahead with pension sharing, the court will grant a Pension Sharing Order. When the order is received the scheme has 4 months to implement the order.
The pension sharing order will result in the former spouse being entitled to a pension credit. Depending on scheme rules and the wishes of the former spouse, the pension credit may be either be:
- transferred to a new or existing pension scheme
- held in the original scheme
Pension credit rights held in a pension scheme are payable under the rules of the scheme, which may or may not be the same as the rules relating to other pension rights in the scheme.