HMRC yesterday published a draft Order [PDF] further extending the scope of transitional protection. This is the long awaited easement, originally announced on 12 December 2006, allowing assignments on wind-up to be treated as block transfers, and also certain past cases where the transfer was not "in a single transaction" (because of contracted-out problems).

The draft Order amends The Pension Schemes (Transfer, Re-organisation and Winding Up) (Transitional Provi sions) Order 2006 (SI 2006/573), which preserves the protection of certain pre A-Day rights following certain transfers or reorganisations and the winding up of schemes. At present, the Order allows individual transfers to annuity contracts ("buy-outs"), consequent on the winding up of a scheme, to be treated as if they were "block transfers". This preserves within the annuity contract any transitionally protected entitlements to early pension ages or tax-free lump sums worth more than 25% of total uncrystallised rights.

The draft amendments to Article 15 seek to extend the terms of the Order so that the protection is also preserved where an existing insurance contract is assigned to the individual member*.

In addition, it is proposed to amend the provisions of the Order relating to transfers consequent on scheme reorganisations in the period between 10 December 2003 (the date of publication of the pension simplification proposals [PDF]) and A-Day. To be covered by these provisions, the rules of the original pension scheme must confer a right to retire before the normal minimum pension age and the employee must have been entitled to take advantage of that right as it existed in relation to the original pension scheme. There must then be a reorganisation (article 10), which has the overall result that the pension rights of an employee (or former employee) are transferred from the original pension scheme to a different pension scheme. The new pension scheme must also have rules which confer a right to retire before the normal minimum pension age.

The draft amendments to Article 10 extend the protection of early pension age entitlements, so as to cover deferred members whose rights were not wholly transferred in a single transaction because of the effect of contracting-out legislation, or whose former employer had no involvement with the scheme to which they were transferred.

* Footnote

The amendments do not cover assignment of a one-man earmarked policy on leaving service (which amounts to a wind-up); these are regarded by HMRC as transfers and trigger loss of protection even though the assignment generally happens automatically and the member has no say in it. The SPC Money Purchase Committee is still pursuing this issue with HMRC.