Member benefits: pensions: protected pension age: right to keep a protected pension age after transfers or winding-ups
Paragraphs 22(5 and 6) and 23(5 and 6) Schedule 36 Finance Act 2004
The Pension Schemes (Block Transfers) (Permitted Membership Period) Regulations 2006 - SI 2006/498
A member with a protected pension age can keep their protection when they become a member of another registered pension scheme or a qualifying recognised overseas pension scheme as a result of a block transfer, or if PTM108000 applies (conditions for individual transfers of pensions in payment). For the avoidance of doubt this block transfer requirement applies to both uncrystallised and crystallised rights. If a transfer is made outside these restrictions, there will be no protected pension age under the receiving scheme.
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 relate to the member and at least one other member of that pension scheme. To be a single transaction:
- all of the sums and assets must be transferred from the transferring scheme to only one receiving scheme. Two or more partial transfers to two or more different schemes cannot be a transfer in a single transaction, and
- the transaction must be made under a single agreement for a single transfer between the two schemes.
It is not necessary that all of the sums and assets are physically passed from the transferring scheme to the receiving scheme on the same day - there may be legal or administration reasons why this is not possible. However they should all be transferred in relation to the agreement to transfer and within a reasonable timescale.
There is no restriction on the type of registered pension scheme receiving the transfer. So a personal pension scheme can receive a block transfer as long as the other block transfer conditions are met.
Because of the nature of the scheme, a retirement annuity contract and a deferred annuity contract (for example, a section 32 policy) cannot normally make a block transfer as there is only one member in the scheme. Similarly an occupational pension scheme that only has one member, e.g. an individual arrangement, cannot normally make a block transfer as there are not enough members for a block transfer to take place. The only time a single member scheme can make a block transfer is when the scheme is being wound up (see below).
Transferring rights for a member from one arrangement whilst retaining benefit rights in another arrangement in the scheme is a partial transfer and so cannot be a block transfer. The remaining rights under the transferring scheme will retain protection. Those rights that have been transferred to the new scheme will have no protection.
Before the transfer, the member must not have already been a member of the registered pension scheme or the qualifying recognised overseas pension scheme to which the transfer was made for longer than 12 months before the date of the transfer. If the receiving scheme was approved as a personal pension scheme and the individual was a member on 5 April 2006 any period of prior membership is ignored where the member’s rights before the transfer consist of only contracted out rights.
In this context, a member includes not only active members, but also deferred members, pensioner members and pension credit members. For example if an individual is not an active member of the receiving scheme but is a deferred member (having deferred benefits held under the scheme) and has been a member for more than 12 months before the transfer is made the transfer cannot be a block transfer.
Following a block transfer, the member retains the protected pension age they had on 5 April 2006 in the previous scheme. Successive block transfers can be made without affecting the member’s protection. If the receiving scheme’s rules allow the member to take benefits from their protected pension age (the member cannot insist on this), and all benefits under the scheme are taken at the same time, including any that accrued after the transfer, the member will be able to rely on their protected pension age.
Paragraph 22(6A) of Schedule 36 Finance Act 2004
Where a transfer takes place on or after 19 March 2014 but before 6 April 2015, it can be a block transfer for the purposes of retaining a protected pension age after transfer if:
- there is a single transaction transferring all the sums and assets held for the purposes of, or representing accrued rights under, the arrangements under the transferring pension scheme in respect of the member, and
- the member becomes entitled to all the benefits payable to the member under the receiving pension scheme on the same date, and
- that date is before 6 October 2015.
A transfer of a sole member’s funds or accrued rights can satisfy the condition for a block transfer under this provision.
Winding up of schemes
Articles 13 and 16 The Pension Schemes (Transfers, Reorganisations and Winding Up)(Transitional Provisions) Order 2006 - SI 2006/573
The transfer of all the benefit rights in respect of a member to a deferred annuity contract will be treated as if it were a block transfer where:
- the winding up scheme condition, and
- the annuity condition
Where these conditions are met the deferred annuity contract is treated as having become a registered pension scheme on the date:
- the contract was made (for a purchased annuity policy), or
- the policy was assigned (for an assigned policy).
The transfer is treated as if it were a block transfer and so the member continues to have a protected pension age.
Transfers to a registered pension scheme that is not a deferred annuity contract made on the winding up of a pension scheme may be a block transfer under the normal block transfer provisions - see above.
If the transfer on winding up of the scheme is not a block transfer because none of the conditions on this page have been met, protection is lost following the transfer.
The winding up scheme condition
The transfer is made from a registered pension scheme that is winding up.
Before the start of the scheme wind-up, the member had the right to a protected pension age under paragraph 22 Schedule 36 Finance Act 2004, i.e. because the scheme met the conditions at the second heading on page PTM062210 or on page PTM062220, or because protection has continued due to a block transfer from such a scheme.
For the avoidance of doubt, any retirement benefits scheme or deferred annuity contract that has only one member is covered by these provisions. How and when a scheme (including single member schemes) wind up is a question of fact. Scheme rules normally contain provisions stating what can trigger a scheme wind-up.
A scheme may have several employers participating in a scheme. Subject to certain requirements being met, a partial winding-up of the scheme will constitute a scheme winding-up for the purposes of these provisions. The requirements are set out at PTM063600.
The annuity condition
This condition is met where the member’s rights under the scheme have been extinguished by either:
- the purchase of one annuity policy that does not provide for the immediate payment of benefits and does not authorise the making of any payment that would be an unauthorised payment (see PTM130000), or
- the assignment to the member of one annuity policy.
The annuity policy must satisfy the conditions that are specified in section 74(3)(c) Pensions Act 1995. This simply means the requirements prescribed by that section, so the purchase or assignment of an annuity from any type of pension scheme, defined benefits, cash balance, or other money purchase should be capable of meeting these conditions.