Navigating block transfer rules

  • Describe challenges that have emerged with block transfers
  • Identify restrictions on partial transfers
  • Explain a reason for using block transfers now
Navigating block transfer rules
(Valery Fedotov/Unsplash)

Although block transfers have been a feature of the pensions landscape since A-day, the strict requirements that apply to them can trip up even experienced advisers.

What is more, the increase to the normal minimum pension age (NMPA) to 57 from April 2028 introduces a new twist on the rules when transferring pension rights with a protected pension age of 55. While well intentioned, this is likely to muddy the waters. 

What sometimes gets lost in the complexity is when and why a block transfer is needed and the mechanics of block transfers, as well as some of the quirks to be aware of regarding the impact on protected pension ages and scheme-specific lump sums.

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What is a block transfer? 

A block transfer, also known as a 'buddy transfer', is where two or more members of the same scheme transfer their pension rights simultaneously to the same receiving scheme. 

The purpose of a block transfer is to allow members to retain scheme-specific protections after the transfer. These are the right to a protected pension age, allowing them to access their pension before the NMPA, and entitlement to a scheme-specific lump sum, which grants the member a tax-free lump sum of more than 25 per cent of their benefits. 

Block transfers were originally intended to protect members with pre-A-day entitlements that could be lost if they were ‘forced’ to transfer, usually as part of a bulk transfer. Ultimately a 'bulk transfer' proved difficult to define, and the final rules instead allow members to carry out a block transfer regardless of the reason for the transfer.

This makes block transfers a valuable tool to help your clients achieve their retirement goals without having to sacrifice their scheme-specific protections.

There are many reasons why someone might want to transfer their pension, not least to take advantage of the pension freedoms that may not be available in older occupational schemes that offered scheme-specific protections.

The conditions 

To retain a scheme-specific lump sum or a protected pension age following a transfer, it must be completed as a block transfer. Special block transfer rules have been introduced for those with a protected pension age of 55, which I will explore later. In all other circumstances, there are three conditions that must be met to qualify as a block transfer:

1. Two or more members must transfer together. All members involved in the block transfer must be transferring from the same transferring scheme to the same receiving scheme. There is no requirement for either member to have a scheme-specific protection, so any other member of the scheme can act as a buddy for the purpose of a block transfer.

This means block transfers are not usually possible for members of single-member schemes, such as retirement annuity contracts and deferred annuity contracts (including section 32 policies). The exception is where a single-member scheme is winding up and the member’s rights are used to purchase a deferred annuity contract.