Firstly, there must be two or more members transferring from the same transferring scheme to the same receiving scheme.
It is not essential that all transferring members have a protected lump sum, which is useful to note, and it is not unheard of for members to encourage friends or spouses to join the transferring scheme with a nominal contribution in order that they have a buddy to transfer with.
Secondly, each member must transfer all of their pension rights – in other words, a full transfer rather than a partial transfer – and the transfers must take place at the same time.
HM Revenue & Customs appreciates there may often be administrative and legal constraints, particularly with transfers in-specie, that mean all funds do not need to arrive on the same day.
Thirdly, the member transferring with a protected lump sum cannot have been a member of the receiving scheme for more than 12 months prior to the transfer. In our experience, this is the requirement that is most often overlooked.
If a transfer does not meet the block transfer requirements, it will still be a recognised transfer (and therefore an authorised payment), but the protection will be lost on the funds that are transferred.
If only part of the funds are transferred, the funds not transferred will still retain the protection.
How does the calculation work?
Before we get on to the calculation and an example, let’s look at the constituent parts.
There are two key figures, and they both relate to the member’s lump sum entitlement at A-Day. These are:
- VULSR = value of uncrystallised lump sum rights as at April 5 2006.
- VUR = value of uncrystallised rights as at April 5 2006.
As the names suggest, these represent the value of the tax-free lump sum rights and the value of the uncrystallised funds to which that lump sum related.
These figures were calculated and recorded shortly after A-Day by the scheme administrator. There was no need to notify HMRC of the figures.
Accordingly, there is no certificate for this like there was for enhanced protection and primary protection.
If the lump sum is preserved on transfer as part of a block transfer, the transferring scheme will provide these figures to the new scheme.
The calculation also uses three lifetime allowance (LTA) figures:
- ULA = underpinned lifetime allowance, which is always £1.8m.
- FSLA = former standard lifetime allowance, which is always £1.5m (the standard in 2006-07).
- CSLA = current standard lifetime allowance, i.e. whatever the LTA is when the member takes benefits.
Here is the calculation itself. Before we go through an example, let’s unpack this a bit to try and understand what it is doing.
