HM Treasury’s proposal to allow some scheme members to keep the right to take benefits before age 57 when the normal minimum pension age increases in 2028, will require use of block transfer. Continuing her series of pensions technical articles for Professional Paraplanner, Jessica List, pension technical manager, Curtis Banks, looks at the block transfer rules.
In February HM Treasury released a consultation into the proposed increase in normal minimum pension age (NMPA) from 55 to 57 in 2028. This increase has been known about for a while, but what came as more of a surprise was a proposal to introduce a new form of protected pension age to allow some scheme members to keep the right to take benefits before age 57 after NMPA increases.
At the time of writing the industry is still waiting for further clarification from HM Treasury about exactly how far reaching these proposals may be. However, one thing that was clear from the consultation is that these new protected pension ages would be subject to the same transfer requirements that apply to existing protected pension ages and scheme specific tax free cash protection. The rules state that these forms of protection are lost when someone transfers to a new pension scheme, unless the move is completed as a block transfer. Here’s a reminder of the block transfer rules, which may need to be considered more often going forward if these proposals are implemented.
1. Two or more members transferring
Possibly the biggest element of a block transfer is that it involves two or more members of the same original scheme transferring together to the same new receiving scheme. The rules aren’t satisfied if the individuals just happen to transfer at around the same time – the transfers have to be arranged together as part of a ‘single transaction’.
This doesn’t mean that the funds have to literally be transferred at the same time, which might not be possible from an administrative perspective – particularly if any of the transfers are completed in specie. What it does mean is that there has to be an agreement to complete the two transfers together as a block transfer from outset. It’s always worth checking with the transferring and receiving schemes to see if they have any specific requirements in order to process the transfers as a block transfer.
2. New scheme
The person transferring with a protected pension age or protected tax free cash cannot have been a member of the new pension scheme for more than twelve months. This rule isn’t quite as clear cut as it first appears, as it simply refers to how long the person has been a member of the scheme before the transfer ‘is made’, and the exact date of a transfer may be difficult to determine. For in specie transfers, it shouldn’t be a problem if the transfer is in progress and simply doesn’t fully finalise until after a year’s membership has passed – however, the block transfer rules won’t be met if the transfer hadn’t even been requested within the twelve month period. Once again however, it’s always worth checking with the providers involved to see if they have any particular criteria they require in order to deem that the block transfer rules have been met.
3. Full transfer
All benefits from the original scheme must be transferred in order to meet the block transfer requirements. If someone completed a partial transfer, the original scheme would keep the protection, but the new one would lose it. In the case of protected tax free cash entitlement, the remaining entitlement in the original scheme would be reduced after a partial transfer.
4. Full crystallisation
This last point technically isn’t a requirement for a block transfer, but is a requirement for a person to keep their protected tax free cash or protected pension age. This rule requires all benefits within the scheme to be crystallised at the same time, including any other funds that may have been contributed or transferred to the scheme. However, it’s worth noting that in the NMPA consultation, it’s proposed that this rule wouldn’t apply to the new protected pension ages. While this requirement does pose some planning challenges to those affected and is easily forgotten, it would still seem needlessly complex to have different rules apply to different types of protected pension ages.
It’s worth noting that someone with protected benefits to transfer can complete a block transfer with another party (or parties) without protected benefits. These conditions only have to be met in relation to the person (or people) with protection.
The consultation into the NMPA increase and protected pension ages [closes/closed] on 22 April, and draft legislation is due to be published over the summer.