Buddy Transfer Question
parawhat
Member
We have a client with a footballers pension scheme with a protected early retirement age of 35. They are currently an active member of the scheme, in receipt of contributions from the professional footballers association.
We're looking to transfer his benefits (all arrangements under the scheme) away to a SIPP for various reasons, and we have a suitable buddy. The scheme have said they can facilitate this as a buddy transfer. As the member is still receiving contributions a new arrangement with the footballers pension scheme would then be opened, although this would not benefit from the protected early retirement age of 35.
We have two questions that we're struggling to get definitive answers on:
- Under buddy transfer rules you have to transfer all benefits at once*. If we advise him to transfer out all current benefits in the scheme, does the fact that he will start to accrue further rights in the future through the new arrangement set up for him (albeit without protected early retirement age) mean that he could fall foul of the buddy transfer rules?
* “A transfer is a block transfer if it involves the transfer in a single transaction of all the sums and assets representing accrued rights under the scheme from which the transfer is made which relate to the member and at least one other member of that pension scheme.”
- One of the potential SIPPs we are considering has already been opened and has already received contributions in. There is no protected retirement age on these contributions, but the account has been opened less than 12 months. If we do a buddy transfer to this scheme, would the benefits already in the pension attract the protected retirement age once the buddy transfer completes?
If not the implications are that he would have part of his benefits with a protected retirement age (the buddy transfer), and part without (existing contributions) – one of the rules relating to protected retirement age is that they must become entitled to all benefits under the scheme at the same time in order to take it early. If he has part of the scheme without protection he can’t take that part until age 55, and as a result can’t take any of his benefits early, effectively losing the protected retirement age.
Comments
I hope he doesn't play for Villa? #UTV
We did this for someone a few years ago - chronic gambler. shame considering how much money these people have.
edit: But i don't know the answers to your specific questions sorry
edit2: unless he's dying of course, that's a genuine one.
The information provided here is based on our understanding and interpretation of current regulations and Revenue practice. It is not intended as a substitute for legal or other professional advice.
The quote you provide, re the definition of a block transfer, looks like it has been taken from either the Finance Act 2004 or the Pensions Tax Manual (PTM). Either way, I would refer you to the following pages from the PTM which provide more detail on the protected pension age.
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062220
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062230
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062240
In respect to the first question, under 'continuing' membership the first thing to ascertain is whether they are rejoining the same registered pension scheme or whether it would be a new scheme altogether, i.e., the PFA scheme now being with a different provider. It isn't absolutely clear from your post which is the case. Where it is a completely separate registered pension scheme there should not be any issue. Bear in mind that if the individual takes benefits before age 50, there is a reduction in the LTA, which may influence future pension funding. The link immediately below explains the methodology.
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm082000
Checking various parts of the legislation and regulations I cannot find any reference to an individual being prohibited from rejoining a scheme, however that being said, it may be worth verifying with HMRC as to whether there would be any issue. Even if it is not an issue, there is always the risk that a further contribution is received before the transfer takes place and due to the overlap, that contribution is missed from the transfer. This, in my opinion, would mean the transfer has not satisfied one of the criteria for a block transfer, and the protected pension age remains with the original scheme.
Provided the individual has not been a member of the receiving scheme for twelve months, one of the conditions to satisfy a block transfer, then the receiving scheme becomes the protected pension scheme under a block transfer. Any previous or future contributions into that scheme 'acquire' the protection and therefore the individual can take all their benefits before age 55. They must, however, become entitled to all of their pension and lump sum rights under the particular registered pension scheme on the same day, meaning they cannot phase taking the benefits from the scheme.
@arongunningham Haha! Not Villa. Thanks anyway.
@neilmacg Thanks for your detailed response and links!
In answer to the following, yes, the member is rejoining the same registered pension scheme/provider (i.e. same PSTR number). In terms of a missed contribution, I hadn't thought about that, but I see your logic and I think we'll have ask the question.
Do you have a specific reference to the bit highlighted below, specifically the 'previous' part?
The information provided here is based on our understanding and interpretation of current regulations and Revenue practice. It is not intended as a substitute for legal or other professional advice.
In answer to your question re pre & post transfer benefit accrual.
If the receiving scheme was established prior to the block transfer, though not for more than twelve months otherwise it won't satisfy the criteria of being a block transfer, then benefits will have accrued in it from perhaps a straightforward transfer, or contributions. As all benefits must be taken at the one time for any protected pension age to apply, the individual must therefore take the benefits that had accrued prior to the block transfer. Although perhaps not explicitly stated in the PTM, this implies that the protected pension age is still applicable, and will not be lost by taking those pre-transfer benefits simultaneously.
Similarly, the same applies to benefits accruing after the transfer. The below is an extract from PTM062240.
Following a block transfer, the member retains the protected pension age they had on 5 April 2006 in the previous scheme (my interpretation of this is as I stated above, i.e., an existing arrangement acquires the protected pension age, provided the block transfer conditions are met). Successive block transfers can be made without affecting the member’s protection. If the receiving scheme’s rules allow the member to take benefits from their protected pension age (the member cannot insist on this), and all benefits under the scheme are taken at the same time, including any that accrued after the transfer, the member will be able to rely on their protected pension age.
Thanks @neilmacg