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Adviser  >  Technical Central  >  Pre simplification  >  Transfers  >  Transfers To And From Free-Standing AVC Schemes

Transfers To And From Free-Standing AVC Schemes

The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.

There is often a lot of confusion over the rules regarding transfer payments to and from free-standing AVC schemes (FSAVCS). This analysis gives full details, and for ease of reference has been split into separate categories; transfer payments to FSAVCSs and transfer payments from FSAVCSs.

Transfer payments to FSAVCs

A FSAVCS cannot be set up for the sole purpose of accepting a transfer value, a member must contribute either a single contribution or regular contributions to the FSAVCS. Transfer payments can be accepted from any of the following five sources:

Another FSAVCS - if the transfer is in respect of a FSAVCS which was set up whilst the member was working for a different employer, details of past service must be obtained.

Separate AVC scheme of the same employer - a transfer payment can be accepted from a separate AVC scheme of the member’s employer. This can only be done whilst the member is:

  • still in service with the employer,
  • still accruing benefits in the occupational pension scheme to which the new FSAVCS is linked, and
  • contributions are to be paid to the new FSAVCS, or have been in the past.

A transfer payment must represent the whole of a member’s benefit under the transferring scheme. This means that it is not possible to transfer AVC benefits out of a scheme in isolation of the non-AVC benefits held in the same scheme.

Personal pension/stakeholder plan - before a transfer payment can be accepted from a personal pension/stakeholder plan a headroom check must be carried out. This ensures that even with the inclusion of the personal pension/stakeholder benefits there is still scope for regular premiums to be paid. If there is no scope for regular premiums the transfer cannot take place.

The personal pension/stakeholder transfer payment must be ring-fenced in the FSAVCS. Up to 25% of the value of the transfer payment, plus any growth up to the date of retirement, can be taken as tax free cash.

Retirement annuity contract - a transfer can be accepted from a retirement annuity contract if:

  • the retirement annuity contract provider agrees to endorse the policy, and
  • the FSAVCS provider is willing to accept it.

Pension credit - a FSAVCS can accept a pension credit from another FSAVCS or a personal pension/stakeholder plan providing certain conditions are met:

  • the member must be in their employer’s company pension scheme, and
  • must contribute to the FSAVCS to which the transfer value is being paid.

Transfer payments from FSAVCs

The extent to which transfer payments out of a FSAVCS are available depends on whether the member has left pensionable service of the employer who was providing the occupational pension scheme. A member is deemed to have left pensionable service if they leave the service of their employer or if they opt out of their employer’s occupational pension scheme but remain in service. The two separate scenarios are explained below.

Member has left pensionable service

The options are as follows:

Refund of contributions - if a member takes a refund of their contributions from the employer’s occupational pension scheme, with or without interest, and no other benefits (except GMP or any protected rights benefits) remain in the employer’s occupational pension scheme, the member must also receive a refund of contributions from their FSAVCS. Any refund of contributions is subject to tax at 20%.

If a member does not pay into their company pension scheme and then leaves service within two years, the member may not have a preserved benefit from the employer’s occupational pension scheme. If this is the case the member must take a refund of contributions from the FSAVCS.

No refund of contributions taken from employer’s occupational pension scheme and member has preserved benefits - if a member leaves pensionable service either by leaving the service of the employer or by opting out of the company pension scheme, a surplus check must be carried out on the FSAVCS. This check is done to make sure that the member is not overfunded. If the member is overfunded the value of any surplus may need to be refunded to the member less 32% tax.

Transfer once surplus AVC check has been completed - provided the member has not passed normal retirement date benefits can be transferred to any of the following contracts, providing the receiving scheme is willing to accept:

  • approved personal pension or stakeholder scheme
  • a scheme approved under Chapter I Part XIV of the Income and Corporation Taxes Act (ICTA) 1988 including FSAVCSs
  • relevant statutory scheme - a statutory scheme established before 14 March 1989 or established thereafter and registered by the Board of the Inland Revenue as a scheme, with corresponding provisions to those of an approved scheme e.g. a public sector scheme
  • funds to which section 608 applies - a section 608 scheme is an occupational pension scheme approved before 6 April 1980 under the old code (an arrangement approved under legislation before Finance Act 1970) which has not been reapproved under the new code and where no new contributions have been paid since 6 April 1980
  • annuity contracts to which section 431 (B)(2)(d) or (e) of ICTA 1988 applies - this is an annuity contract entered into for the purpose of:

- a scheme which is approved or is being considered for approval under Chapter I of Part XIV of ICTA 1988 including FSAVCSs
- a fund to which section 608 applies (see above)
- any annuity contract which is entered into in substitution of a contract e.g. a buy out bond.

Member has not left pensionable service

If a member is still in pensionable service, the only permitted transfer is to another FSAVCS or to an approved retirement benefits scheme or a relevant statutory scheme of the current employer.

It is not possible to contribute to more than one FSAVCS in respect of the same service in the same tax year. Care should be taken when transferring a FSAVCS to a new FSAVCS to ensure that contributions are not paid into both FSAVCSs in the same tax year.

Other points to note

Nil certificate - no tax free cash can be taken from a FSAVCS. If the money is transferred to another plan the transfer will be subject to a nil certificate. A nil certificate indicates that a transfer value is not to be used to provide retirement benefits in lump sum form.

Pensions sharing order - any pensions credit transferred out of a FSAVCS to another pension scheme reduces the fund in the transferring FSAVCS by the corresponding amount.

Summary

A FSAVCS can accept a transfer payment from another FSAVCS, a separate AVC scheme of the same employer, a personal pension/stakeholder plan, a retirement annuity contract or a pensions credit.

The options available to a person who would like to transfer (TV) their money out of a FSAVCS are shown below.

Left pensionable service 

TV to ops of employer

TV to new FSAVCS, no contributions to be paid

TV to new FSAVCS, contributions to be paid †

TV to another
allowable
scheme

Refund
of
Contributions

Refund of contributions under OPS to which FSAVCS linked

No

No

No

No

Yes

No refund of contributions and before NRD

Yes

No

Yes, if joined new Employer’s OPS

Yes

No

No refund of contributions, after NRD and still in service of employer that pensionable service relates to

Yes

No

No

Yes

No

No refund of contributions, after NRD and not in service of employer that pensionable service relates to

No

No

No

No

No

 

Still in pensionable service

TV to ops of employer

TV to new FSAVCS, no contributions to be paid

TV to new FSAVCS, contributions to be paid †

TV to another allowable scheme

Before NRD

Yes

No

Yes

No

After NRD and no main scheme benefits taken

Yes

No

Yes

Yes

After NRD and main scheme benefits taken

No

No

No

No

† Single contributions must be paid before the transfer value can be accepted. For regular contributions, a transfer cannot be accepted before the policy commencement date.

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

We cannot accept direct transfer business from members of the public. Transfers are complex and individuals should consult an Independent Financial Adviser for advice. Transfers depend on personal circumstances and may not always be in an individual’s best interest. Production of a transfer value analysis is a necessary requirement of the transfer process.

Updated: December 2003

Published 04 March 2003

 

For professional advisers only