PTM106000 - Transfers: Transfer of beneficiary’s annuities and beneficiary’s short term annuities
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Beneficiary’s annuity is the collective annuity payable to either a dependant, nominee or a successor. The term covers a dependants’ annuity, a nominees’ annuity and a successors’ annuity.
Beneficiary’s short-term annuity drawdown pension is the collective name given to short-term annuities payable to either a dependant, nominee or successor. The term covers a dependants’ short-term annuity, a nominees’ short-term annuity and a successors’ short-term annuity.
Where an insurance company is paying a:
- beneficiary’s annuity, or
- beneficiary’s short-term annuity
the annuity is not being paid directly under a registered pension scheme. An annuity contract can be transferred from one insurance company to another, but it won’t be a recognised transfer because no registered pension scheme is directly involved. However the annuity contract will have been purchased using the sums and assets from a registered pension scheme. Section 161 Finance Act 2004 provides that the payments rules and tax charges apply to payments from an insurance or annuity contract acquired using registered pension scheme funds.
Where one of the types of annuity listed above is transferred from one insurance company to another the amount transferred between insurance companies will be an unauthorised payment unless certain conditions are met.
Transfers of dependants’ annuities
Transfer of nominees’ or successors’ annuties
Transfer of dependants’, nominees’ and successors’ short-term annuities
Transfers of dependants’ annuities
Paragraph 17(3) to (6) Schedule 28 Finance Act 2004
Regulations 10 and 15 The Registered Pension Schemes (Transfer of Sums and Assets) Regulation 2006 - SI 2006/499
Following the transfer of a dependents’ annuity the new insurance company should also pay a dependants’ annuity. If this is not the case the scheme that provided the sums and assets to purchase the original dependants’ 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 dependants’ annuity.
Where a replacement dependant’s annuity is payable the cessation of the dependants’ annuity from the original insurance company because of the transfer is not regarded as a surrender for the purposes of section 172A(1) and (2) Finance Act 2004.
Entitlement to original dependants’ annuity arose before 6 April 2015
If the dependant became entitled to the original dependants’ 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 (see PTM072200). If the terms of the annuity contract are capable of providing for such decreases the new annuity is not a dependants’ annuity and the amount transferred would be an unauthorised payment.
In this context becoming entitled to the original dependants’ 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 the dependant became entitled before 6 April 2015. For example the dependant became entitled to an annuity payable from insurer A on 30 May 2006 using funds from the XYZ pension scheme, then the annuity contract was transferred to insurer B on 30 June 2014 and then transferred to insurer C on 1 October 2016. The entitlement to the original dependants’ annuity occurred on 30 May 2006, i.e. 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 dependants’ annuity is purchased together with a lifetime annuity if the dependants’ 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 to before 6 April 2015.
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 nominees’ or successors’ annuities
Paragraphs 27AA(3) to (5) and 27FA (3) to (5) Schedule 28 Finance Act 2004
Regulations 19 and 20 The Registered Pension Schemes (Transfer of Sums and Assets) Regulation 2006 - SI 2006/499
Following the transfer, the new insurance company should provide the same type of annuity. So, a nominees’ annuity should follow transfer of a nominees’ annuity and a successors’ annuity should follow transfer of a successors’ annuity. If this is not the case the scheme that provided the sums and assets to purchase the original 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 nominees’ or successors’ (as appropriate) annuity.
Where a replacement nominees’ or successor’s annuity is payable the cessation of the nominees’ or successor’s annuity from the original insurance company because the transfer is not regarded as a surrender for the purposes of section 172A(1) and (2) Finance Act 2004.
Transfer of dependants’, nominees’ and successors’ short-term annuities
Paragraphs 20(1B) to (1E), 27C (2) to (4) & 27H (2) to (4) Schedule 28 Finance Act 2004
Regulations 11 and 16 to 18 The Registered Pension Schemes (Transfer of Sums and Assets) Regulation 2006 - SI 2006/499
Following the transfer the new insurance company should provide the same type of annuity. So a dependants’ short-term annuity should follow transfer of a dependants’ short-term annuity, a nominees’ short-term annuity should follow transfer of a nominees’ short-term annuity and a successors’ short-term annuity should follow transfer of a successors’ 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 dependants’/nominees’/successors’ (as appropriate) short-term annuity.
Entitlement to original dependants’ short-term annuity arose before 6 April 2015
If the dependant became entitled to the original dependants’ short-term 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 (see PTM072450). If the terms of the annuity contract are capable of providing for such decreases the new annuity is not a dependants’ annuity and the amount transferred would be an unauthorised payment.
In this context the date of entitlement to the original contract is the date of entitlement from the registered pension scheme. So if, for example, a dependant became entitled to a dependants’ short-term annuity payable from insurer A on 30 May 2012 using funds from the XYZ pension scheme, then the annuity contract was transferred to insurer B on 30 June 2014 and then transferred to insurer C on 1 October 2015 the date of entitlement to the original dependant’s’ short-term annuity is 30 May 2012.
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.