PTM062240 - Member benefits: pensions: protected pension age: right to keep a protected pension age after transfers or winding-ups

Glossary PTM000001

This page only applies to the 2010 protected pension age where members could take their benefits before the age of 55. A new protected pension age will be introduced from 6 April 2028 where members can take their benefits before the age of 57. For information on the 2028 protected pension age see PTM062205.

Transfers
Block transfers
Winding up of schemes

Transfers

Paragraphs 22(1), (2) and (5) and 23(1), (2) and (5) schedule 36 Finance Act 2004

A member with a protected pension age under a pension scheme will lose that protection if they transfer to another scheme unless the transfer is:

  • a block transfer, or
  • to a scheme under which the member already has a protected pension age.

For the avoidance of doubt this block transfer requirement applies to both uncrystallised and crystallised rights.

If the member keeps protection because the transfer is a block transfer their protected pension age under the transferring scheme becomes the protected age under the receiving scheme. The receiving scheme also ‘inherits’ the payment condition from the transferring scheme. So, if the original pre-6 April 2006 scheme was:

  • an occupational-style scheme, the conditions for taking benefits set out at PTM062210 apply under the receiving scheme; this is so, regardless of the type of the receiving scheme
  • a personal pension scheme or retirement annuity contract, the condition for taking benefits set out at PTM062220 applies under the receiving scheme; this is the case regardless of the nature of the receiving scheme.

Transfer of benefits in payment

Paragraph 23ZA schedule 36 Finance Act 2004

Where a recognised transfer (that was not a block transfer):

  • is made after 5 April 2015, and
  • all the transferred rights relate to a pension in payment using a protected pension age

pension payments may continue as authorised payments under the receiving scheme. PTM108000 provides more information about this.

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Block transfers

Paragraphs 22(6) and 23(6) schedule 36 Finance Act 2004

The Pension Schemes (Block Transfers) (Permitted Membership Period) Regulations 2006 - SI 2006/498

A transfer is a block transfer if:

  • it is a transfer of the pension rights relating to the member and at least one other pension scheme member
  • the transfer is made as a single transaction
  • the transfer represents all the pension rights under the scheme for all the members transferring as part of that single transaction, and
  • before the transfer the member had not been a member of the receiving scheme for more than 12 months. See the section Membership period below for more information about this requirement.

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 administrative 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, for example, 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 Winding up of schemes 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.

Membership period

The member must not have already been a member of the pension scheme to which the transfer was made for more 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 only of 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 in the previous scheme. Successive block transfers can be made without affecting the member’s protection.

Transitional provision

Paragraph 22(6A) 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.

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Winding up of schemes

Articles 13 to 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

are met.

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, because:

  • the scheme met the conditions at PTM062210, or
  • 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) winds 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.