Tax-free cash protection on transfer - some common questions

Protecting tax-free cash on transfer is, and always has been, one of the most popular queries we receive. More specifically, what happens if an individual who is entitled to tax-free cash of more than 25% is transferring to another plan?

It's a tricky subject, so we've summarised the conditions where tax-free cash of more than 25% will survive a transfer and set out the answers to some of the more common questions we receive.

Some common questions

  1. The individual is already in a Section 32, can they block transfer to a personal pension?
    No - a Section 32 is a single member scheme so there's no buddy to block transfer with. Tax-free cash protection will only apply if they are transferring to another Section 32 as part of a wind-up transfer.
  2. The individual is the only one in an EPP, can they block transfer to a personal pension plan?
    No, again there isn't a buddy - they'll have to wind-up the EPP and transfer to a Section 32 or the plan can be assigned to the individual. Alternatively, they can transfer to a personal pension and accept that tax-free cash will drop to 25%.
  3. If tax-free cash is protected on transfer, will the same happen if they transfer again?
    Yes, if the block transfer conditions are met each time. If it is a wind-up transfer, tax-free cash protection will be maintained if all three conditions continued to be met (please see below). This means an individual could effectively transfer from Section 32 to Section 32 and continue to have protected tax-free cash indefinitely.
  4. Can the individual do a wind-up transfer to a personal pension?
    No, it would have to be to a Section 32.
  5. Two individuals are block transferring. One is going to a personal pension plan while the other is going to a group personal pension plan with the same provider. Does this count as the same scheme for block transfer purposes?
    Yes, it would as long as both plans are part of the same scheme. Stakeholder and personal pension plans are usually separate schemes however, so if one was going to a stakeholder scheme and another to a personal pension plan with the same provider, this wouldn't satisfy the block transfer rules.

The conditions

There are two main types of transfer where tax-free cash of more than 25% can be protected - a block transfer and a transfer where the scheme is being wound-up. The conditions that must be met are as follows.

Block (or buddy) transfer

  • More than one member of the scheme must transfer at the same time to the same scheme.
  • 'Same time' doesn't mean funds have to transfer on the same day, so long as the transfers are obviously meant to be part of the same transaction.
  • 'Same scheme' can mean to personal pension plans with the same provider provided they are written under the same trust.
  • All of the scheme benefits have to be transferred - a partial transfer doesn't protect tax-free cash.
  • And the individual can't have been a member of the receiving scheme for longer than 12 months - a particular issue if they've already got a personal pension with the receiving provider.

Wind-up transfer

  • The individual has protected tax-free cash.
  • The existing scheme must be winding up.
  • The receiving plan must be a deferred annuity contract, usually a Section 32 plan.

Further information

HMRC Pensions Tax Manual - PTM063150: Member benefits: lump sums: protection of pre-6 April 2006 lump sum rights: scheme-specific lump sum protection - transfers and winding-up


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. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

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.

Share by email:

Share by email:

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.