Pensions: IHT charges: transfers between pension schemes
A pension scheme member has a statutory right to transfer their pension fund from one scheme to another. When this type of transfer is made, the member surrenders their rights under the first scheme in return for rights under the second. A person can do this regardless of their rights to benefits under the first scheme. This includes the situation where there is an existing irrevocable nomination in relation to death benefits, for example where the death benefits have been assigned on discretionary trusts. The second scheme is not subject to directions given in relation to the first scheme.
The funds do not rejoin the member’s estate during transit. What is in the estate at this point is the right to determine the terms of payment of death benefits in the second scheme. This right has value because the member could direct the payment to their own estate. If payment is not directed to the estate then there may be a loss to the estate depending on the member’s health at the time.
If a person is in normal health at the date of the transfer then the loss to the estate is nominal. If they are in ill-health at the date of the transfer then the loss may be significant.
Details of any transfers made within the 2 years before the death should be reported on the IHT409 (IHTM17014)