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In specie transfers
'In specie' is a Latin term meaning 'in the actual form'. Transferring an asset 'in specie' means to transfer the ownership of that asset from one person/company/entity to another person/company/entity in its current form, that is without the need to convert the asset to cash.
Key facts
- In specie transfers can involve shares, property or funds.
- Ownership is transferred from one pension scheme to another.
- No dealing costs are involved but either or both of the ceding and receiving schemes could charge for the work involved in the transfer.
- As they are transfers, they don't get tax relief; nor do they count against the annual allowance.
In specie transactions can involve pension schemes in two different ways - in specie transfers and in specie contributions. This article explains how in specie transfers work.
Let's assume that a member of a pension scheme has started a new Self Invested Personal Pension (SIPP) or Small Self Administered Scheme (SSAS) and he or she wants to transfer everything from their old pension arrangement to their new one.
The checks have already been done and the trustee/scheme administrator of the new pension arrangement has confirmed that it will accept the transfer of assets.
Shares
The member must first formally ask the new pension arrangement to request an in specie transfer of assets from the old pension arrangement.
This is normally done by the signing of an application form that also gives the trustees/scheme administrator of the new pension arrangement permission to approach the trustees/scheme administrator of the old pension arrangement to request the transfer.
The trustees/scheme administrator of the old pension scheme must then arrange for the assets to be re-registered in the name of the new trustees/scheme administrator (or the custodian on their behalf). This process can take several months.
Property
The trustees/scheme administrator of the pension scheme will normally be the legal owner of any commercial property held within the scheme - the property 'title' is held by the trustees/scheme administrator.
In a similar way to shares, the pension scheme member must make a formal transfer request (again, usually by application) that starts the process off. In the case of property, lawyers are involved and are required to change the 'title' of the property from one pension scheme trustee/scheme administrator to another.
Pension schemes will want to carry out the normal conveyancing searches and checks - as they would if they were purchasing the property - to make sure it is a suitable investment for the pension scheme. This process can also take several months.
Funds
In some circumstances, funds can be transferred between schemes without first selling the units (or shares) and the process is similar to the re-registration process for shares - the legal ownership is re-registered in the name of the new pension trustee/scheme administrator.
This can usually only happen when the funds are readily tradable and available through various distribution channels e.g. transfer of funds from one fund supermarket to another.
Other assets
Other assets could be transferred such as policy only EPPs, Trustee Investment Plans or Traded Endowment Policies. A similar process to transferring funds would be followed.
Tax relief and costs involved
Re-registering the assets in the name of the pension scheme transfers the ownership of the assets.
If a transfer involves an asset e.g. property, that asset must be valued in cash terms by an appropriately qualified independent person before being transferred.
As the assets are not being bought or sold, there are no dealing costs. However, the trustees/scheme administrator might charge for the work involved in changing the ownership of the asset and there could be two charges - on the way out of the existing scheme and on the way into the new one.
This succeeds in getting the assets transferred into the new pension scheme but does not count as a contribution and therefore there is no tax relief. Neither does it count against the annual allowance.
Further information
In specie transfers and contributions - what's the difference?
Disclaimer
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.