Here we answer a few common questions we are asked about pension transfers.
Q: What transfer permissions apply for a payment from an AVC scheme, which does not contain any safeguarded benefits, to a personal pension plan?
A: Although the individual giving advice does not have to hold a pension transfer specialist qualification (PTS), the adviser firm must hold the relevant transfer permissions to allow them to conduct this type of transfer business.
Q: Can a ceding scheme transfer a pension fund which contains non equalised Guaranteed Minimum Pension (GMP)?
A: For a transfer to personal pension the member gives up the right to any GMP so, currently, there is no legislative reason stopping this transfer payment. Although you should be aware this position is fluid following the High Court ruling in October 2018. This determined that pensions provided to members who had contracted-out of their scheme must be recalculated to ensure payments reflect the equalisation of normal retirement ages in the 1990s.
The court didn’t set a definitive method for equalisation and, with several possible methods being available, a new industry group has been set up to help pension schemes in this task. The group will help develop and promote best practice on issues arising from the ruling, from how to address missing data through to dealing with transfer requests and rectifying underpayments.
Q: What happens to GMP on transfer to a personal pension scheme?
A: The entitlement to guaranteed benefits is lost. The entire transfer value is simply converted to ordinary rights when the payment is accepted by the receiving scheme.
Open Market Option (OMO) vs Transfer
Q: Can any provider accept an open market option (OMO) transfer into drawdown?
A: No, HMRC rules do not allow this. Legislation will only allow an OMO payment to buy an annuity.
A scheme can only accept a transfer if it is paid as a drawdown to drawdown transfer. If the transferring scheme pay the pension commencement lump sum, then they must put the balance into drawdown in their scheme, then make the transfer payment.
Exit charge cap
Q: When was the 1% exit charge cap introduced?
A: 31 March 2017 for personal pensions. The cap applies for all members joining on or after this date and for pre 31 March 2017 members who have reached normal minimum pension age or their protected early pension age. Read more in FCA Policy Statement PS16/24.
1 October 2017 for occupational pensions. The cap applies for all members joining on or after this date and for pre 1 October 2017 members who are eligible to access pension freedoms. Read more in Statutory Instrument SI 2017/774 made July 2017.