Interaction with fixed and individual protection
A member with a scheme-specific protected lump sum may have subsequently applied for one of the types of fixed or individual protection. There is a slight quirk in the calculation for these members.
The A-Day lump sum is calculated in the same manner as outlined above. However, the additional lump sum amount calculation uses the protected lifetime allowance rather than the current standard lifetime allowance. This can result in the member receiving a lower PCLS than they would have done without the additional fixed or individual protection.
Block transfers
Rights that benefit from scheme-specific protection are – as the name suggests – specific to the pension scheme where the rights were accrued and are usually lost on transfer. However, if a ‘block transfer’ (sometimes also known as a ‘buddy transfer’) is made, then the rights can be carried across to the new scheme.
There are three conditions for a transfer to be a block transfer. All three must be satisfied for the protection to be retained.
- There must be two or more members. All members involved in the block transfer must be transferring from the same transferring scheme to the same receiving scheme. However, there is no requirement for both members to have scheme-specific protection – so one member with protection could ‘buddy up’ with someone who has no protection.
- All of the sums and assets relating to those members must be transferred as a single transfer. The instruction to transfer for both/all members must come through as one request. It does not mean that all assets must be transferred on the same day, as this may not be practical – especially when transferring in specie. Partial transfers cannot satisfy the block transfer conditions.
- None of the members can have been a member of the receiving scheme for more than 12 months prior to the (completion of the) transfer. Setting up a new arrangement within a scheme the individual has already been a member of for more than 12 months would not get round this issue. It must be a completely separate scheme (with a different pension scheme tax reference (PSTR) from HMRC).
If any of the conditions are not satisfied, the transfer cannot be a block transfer. It could still be a recognised transfer, so there are no unauthorised payment issues.
However, the member would lose their right to the protected benefit entitlement on the funds that were transferred to the new scheme. If any funds remained in the transferring scheme, these would still retain the protection.
There are not any restrictions on the type of scheme that can accept a block transfer. However, it is not possible to do a block transfer from a retirement annuity contract or a deferred annuity contract (Section 32 policy), as these schemes only have one member, so a transfer could never meet the block transfer criteria.
If someone has a protected PCLS under a one-member scheme, then the statutory permissive override may be useful to allow them to take the protected amount and still access flexi-access drawdown rather than having to purchase an annuity. See the section below for more information.
If an individual has scheme-specific protection in relation to more than one pension scheme, it is not possible to consolidate these into one scheme and keep all the protected amounts, even if the block transfer conditions are met. The protection is only retained in respect of the first transfer.
When it comes to accessing the pension, the fund must be fully crystallised to use the protection (this is also the case for protected retirement ages); it is not possible to partially crystallise. This includes any other funds that have been transferred in, or contributions made, that did not originate from the scheme where the protection was acquired.
However, if someone fully crystallised, they can continue making contributions, or transfer other funds in, and take these at a later date. The crucial point is that they must crystallise everything that is in the pension fund at the time of the benefit crystallisation event.
