Although the Inland Revenue has made it possible to transfer pensions after the normal retirement date, advisers should be aware some restrictions do still apply
Once upon a time, pension transfers after normal retirement date (NRD) were simply not allowed and anyone who reached normal retirement date had missed the boat as far as transferring away was concerned.
In 1998 the Inland Revenue relaxed its ban on transfers after NRD but written confirmation of how this relaxation applies was not issued until October 2001, via Pensions Update 109.
It is important to remember that this article sets out only what the Inland Revenue will permit. In specific cases the scheme rules may be more restrictive, by prohibiting any transfers after NRD or within one year of NRD for example.
In practice, this means that an individual may be prevented from transferring after NRD even though the Inland Revenue would be comfortable with them doing so. It is also important to remember that there are still situations in which someone who has passed their NRD cannot transfer.
Transfers after NRD where the member left pensionable service before NRD:
When looking at an individual who left pensionable service before NRD, the basic principle is that a transfer may take place after NRD provided that benefits have not come into payment and have not become payable. Whether benefits have become payable will depend on the tax regime applying to the member. A Finance Act 1989 member who has left pensionable service can choose when to take benefits at any time between the ages of 50 and 75, subject to the member having left the employment concerned. This means that the member may transfer after NRD but before age 75, provided that benefits have not commenced.
Continued rights members ' people who fall within either of the pre-Finance Act 1989 regimes ' are subject to the requirements set out in the previous paragraph, and in addition, must take benefits by the latest of:
• The NRD under the scheme
• The NRD under a subsequent employer's scheme
• Ceasing all employment or self-employment.
Consequently, when the member reaches the latest of these dates, benefits under the scheme become payable and a transfer is no longer permitted. If the member wants to transfer, the request must be made before the relevant date concerned.
Transferring after NRD having remained in pensionable service:
Pensions Update 109 covers the position of individuals, irrespective of the tax regime that applies to them, who leave pensionable service on or after NRD, but:
• Continue in the service of the employer concerned, and
• Are still in the service of the employer when the request to transfer is made, and
• No main scheme benefits relating to that employment are in payment.
These members may transfer after NRD if the rules of the pension scheme concerned permit it.
The member must leave pensionable service and request a transfer before actually leaving the employment. If the member leaves the employment at or after NRD and then requests a transfer it cannot proceed as benefits will have become payable at the point of leaving employment.
Membership of more than one scheme of the same employer:
An individual may be a member of more than one scheme in relation to the same employment. If benefits have commenced from one of the schemes a transfer cannot take place in relation to the other scheme(s) once NRD has been reached.
Although Pensions Update 109 does not say so, the Inland Revenue has confirmed that where the proposed transfer is before NRD this will be permissible even if benefits from another scheme in relation to the same employment have commenced.
Transferring after NRD once benefits have commenced:
The only circumstances in which benefits may be transferred once they have commenced is if one of the following applies:
• The only benefits in payment are additional voluntary contributions (AVCs), which have come into payment before main scheme benefits. In practice, this is unlikely as the AVC benefits would have to be paid by income drawdown and trustees of occupational pension schemes have been very reluctant to consider this
• An employer's pension arrangements are restructured and a transfer takes place between schemes of the employer.
So for the vast majority of people transferring from an occupational pension scheme after benefits have commenced is simply not possible.
Transfers into schemes from which benefits have commenced:
The Inland Revenue will not object to benefits being transferred into an occupational pension scheme that has already started to pay benefits.
Clearly in practice, this will be possible only where the pension is being paid directly from the receiving scheme (an annuity has not yet been purchased). The receiving scheme has the option of refusing to accept the transfer.
Where a transfer is made into a scheme in which the member has benefits in payment and the member has already received a tax-free cash lump sum from that scheme, no further lump sum may be paid in respect of the funds which are being transferred in. However, if no tax-free cash was taken under the receiving scheme, any tax-free cash payable in respect of the transferring scheme may be paid after the transfer.
Transfers from insured schemes to small self-administered schemes:
Historically, the Inland Revenue has objected to transfers from an insured scheme to a small self-administered scheme (Ssas) of the same employer where the member was beyond NRD.
The Inland Revenue will no longer object to such transfers provided they arise as a result of a restructuring of the employer's schemes. Where the transferring scheme is making payments to the member under income drawdown, a review may be carried out at the date of transfer even if the last review was less than three years ago. If the fund has dropped in value since the last review this might result in a reduction in the minimum income.
In this case the Inland Revenue will not object to the actual amount of income in payment being reduced.
Inland Revenue approval for transfers:
Prior Inland Revenue approval is needed for all transfers of benefits in payment where:
• The transfer relates to a member whose main scheme benefits are subject to income drawdown
• The transfer involves a small self-administered scheme.
A transfer request must be made before any date by which benefits would have to come into payment. The Inland Revenue has confirmed that provided a written request is made to the trustees before the relevant cut off date, the transfer may still proceed after that date. For example, where an employee is approaching NRD and will leave employment at that date, a transfer may be made after NRD provided it was requested before NRD. However, no transfer may be made once the member reaches age 75 even if the transfer request was made before that date.
The flow chart on the left is designed to help establish whether in a particular case an individual may transfer after NRD.
Of course, the one concession some members of occupational schemes and the their advisers would like to see remains a pipe dream, namely the option to take tax-free cash from their occupational pension scheme and transfer the remaining fund to a personal pension for income drawdown.
While some concessions may come out of the Inland Revenue's simplification review expected later this year I cannot see that one making it out of the starting blocks.
In some cases, despite Revenue rules, scheme rules may prohibit transfers after NRD or within one year of NRD.
Some concessions on transfers may come out of the IR's green paper.
One popular but unlikely concession would be the option to take tax-free cash from the occupational pension and transfer the rest to a personal pension for drawdown.
Lack of innovation for solutions
Some 2,000 consumers affected
Achievements, charity work and other happy snippets
Appetite has suffered since Brexit vote
'Failure to pay attention can result in enforcement'