The subject of lump sum (tax-free cash, or TFC) certification on transfer of pension rights has long been a complex one. The current published Revenue practice on transfers from occupational pension schemes is set out in IR 12 paras 16.17 - 16.23. This stipulates that a TFC certificate is only required in the following circumstances:

1. Member is a Controlling Director, or a High Earner aged 45 or more at the date of transfer, ie what the PP GNs term a "regulated individual", and transferring benefits to a PP;
2. Member is transferring to another OPS in which he/she has Continued Rights (ie is a Pre-87 or 87-89 Member), or the receiving scheme is an SDCS; or
3. In respect of any amount in the transfer originating from a scheme where benefits are restricted to a non-commutable pension (requiring a so-called "Nil certificate").

What has not always been so clear are the circumstances in which a fragmented (split) transfer needs TFC certification. Revenue practice set out in JOM 104 (March 1991) stated that

"Where the transfer payment is fragmented amongst more than one receiving scheme or arrangement a certificate is required for each. The maximum amount certified . . . must be split proportionately to the amount (excluding protected rights) of each transfer payment, and certified to each receiving scheme accordingly." [JOM 104 para 21]

The relevant PN today, PN 16.22, follows a number of paragraphs specifying when the TFC certificate is and is not currently required (see above) but by its wording appears to assume that all transfers - fragmented or not - require certification:

"If a transfer value is fragmented, e.g. part transferred to a personal pension scheme or a buy-out policy and part to the pension scheme of a new employer, the amount certified should also be split proportionately to the amount of each transfer payment to ensure that the total lump sums flowing from the transfer payment are consistent with the amount payable in that form from the scheme had the transfer not been made."

Today, in Pensions Update No. 147, IR SPSS attempts to re-state current practice and extends it in two particular respects. Para 1 first makes it clear that if none of the circumstances a), b) or c) above apply, then PN 16.22 does not apply to a fragmented transfer.

However, the next paragraph states that with immediate effect, any fragmented transfer from an OPS involving a regulated individual will require a TFC certificate. Furthermore, it says, lump sum rights must be strictly apportioned, even where the transferred rights include protected rights. This puts a definitive stop (for regulated individuals) to a practice which had developed - apparently sanctioned by the Revenue - of transferring the entire lump sum rights to one scheme or arrangement (eg non-GMP rights to a s.32) and the remainder, subject to a "Nil certificate", to another (eg GMP rights to a PP).

The second change of practice is that from today, a similar TFC apportionment rule must apply to all cases where benefits are paid in respect of a Controlling Director or a High Earner aged 45 or more at the date of vesting, who has pension rights in more than one scheme relating to the same employment which do not vest simultaneously.

As far as non-regulated individuals go, the Update makes no change to "existing published requirements". Where transfers are made in circumstances where there is no lump sum certification requirement, no lump sum certificate must be given with the transfer. It specifically acknowledges that there is no objection to "such a member's entire lump sum rights being transferred to only one of the receiving schemes on a fragmented transfer from an occupational pension scheme". However, IR SPSS reserves the right to treat any non-pro-rata apportionment of TFC as an abuse, if it considers the aim is to achieve a higher lump sum post-A Day under the new regime (via a combination of transitional rights and the right to take a lump sum of 25% from each scheme).