1. Home
  2. Technical Central
  3. Pensions guidance
  4. Transfers
  5. Protected tax-free cash on transfer
Dougie Kneller
Senior Technical Support Consultant

Share

Protected tax-free cash on transfer

Published  16 June 2026
   5 min read

Protected tax-free cash can be lost when pension benefits are transferred. In most cases it is only preserved where the transfer is a block transfer, a wind-up transfer. Let's look at when protection can be kept and the key pitfalls advisers should check before a transfer.

Key facts

  • Scheme specific tax-free cash is lost on transfer unless it's one of the following:
    • It's a block (or buddy) transfer.
    • It's a wind-up transfer.
  • Those with primary protection and a registered tax-free cash amount on their certificate retain their protected tax-free cash on transfer
  • Those with enhanced protection with registered tax free cash can keep it when transferring as long as they applied for the protection before 15 March 2023 and were issued with a certificate/reference number. If they applied on or after that date, keeping it depends on whether the transfer meets the permitted transfer rules.

What is scheme specific tax-free cash protection?

If an individual's tax-free cash entitlement under a registered pension scheme (such as an occupational pension scheme, Section 32 buy-out policy or deferred annuity contract) was more than 25% of the benefits value on 5 April 2006, it can be protected through scheme specific tax-free cash protection. 

This protected higher pre-6 April 2006 tax-free cash amount is automatically increased by 20%. The growth on the post 6 April 2006 fund may also give rise to additional tax-free cash.

The exact formula to use can be found in our article - Protection of scheme specific tax-free lump sum

HMRC Pensions Tax Manual PTM063130: Scheme-specific lump sum protection - overview

Scheme specific tax-free cash protection is lost on transfer unless it's a block (or buddy) transfer or a transfer on wind-up of a scheme.

Scheme-specific tax-free cash protection is retained to a certain degree if only part of the protected scheme is transferred. The transferred portion won't be protected, but the remaining funds will keep the protected tax-free cash, but it will be decreased by 25% of the value that was transferred out.   

What is a block (or buddy) transfer?

A block (or buddy) transfer has a number of conditions:

  • More than one member of the same scheme must transfer at the same time to the same scheme. A transfer to or from a Section 32 plan can’t meet this condition as you can't have more than one member of a Section 32 plan. A group personal pension, personal pension, stakeholder pension or an occupational pension scheme under the same trust will be able to have more than one member in it and so a block transfer may be possible.
  • 'Same time' doesn't mean funds have to transfer on the same day if the transfers are obviously meant to be part of the same transaction.
  • All the individual’s benefits under the scheme must be transferred; a partial transfer doesn't protect tax-free cash.
  • The individual must not have been a member of the receiving scheme for longer than 12 months unless that scheme is a personal pension (including a stakeholder pension) that has only contracted out rights and they were a member on 5 April 2006.

If these conditions are met, and the receiving scheme accepts protected tax-free cash, any pre-6 April 2006 entitlement to tax-free cash exceeding 25% will be preserved under the new scheme.

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 

Can an individual transfer more than one block transfer into a scheme? 

Only one protected tax-free cash amount can be held in a scheme. 

If an individual has more than one pension scheme with protected tax-free cash and they block transfer these benefits into the same receiving scheme, the protected tax-free cash amount in the second transfer, and any subsequent transfers, will be lost.  

Example 
First transfer from an EPP - transfer value - £500,000, tax-free cash - £350,000 (70%) 
Second transfer from a CIMP - transfer value - £100,000, tax-free cash - £80,000 (80%) 
Total transfer value - £600,000 

When the first amount is block transferred to the new scheme, the protected tax-free cash amount of £350,000 is recorded against the scheme. When the second amount is block transferred, the second protected tax-free cash amount is lost as only one amount can be held in a scheme, leaving only the original £350,000 protected, a drop of £80,000. 
 

Can another block transfer out be done again? 

If the individual’s benefits under a scheme currently has protected tax-free cash due to a previous block transfer-in, and they want to transfer their benefits to another scheme and keep the protected tax-free cash, the block transfer conditions must be met every time they transfer. 

What is a wind-up transfer? 

This is a specific type of transfer. For a transfer to be treated as a winding-up transfer, a number of conditions must apply: 

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

If all the above conditions are met, any protected tax-free cash will be maintained under the new pension scheme. 
 
HMRC Pensions Tax Manual PTM062240: Winding-up 

What about tax-free cash for those with primary protection? 

Individuals who had a benefits value on 5 April 2006 of over £1.5 million could have applied for primary protection to reduce or eliminate the chance a lifetime allowance charge could have applied. Although the lifetime allowance was abolished from 6 April 2024, having primary protection can have an impact on the individual’s lump sum allowance and lump sum and death benefit allowance. 
 
If pre-6 April 2006 tax-free cash was less than £375,000 (25% of the lifetime allowance on 6 April 2006) the amount payable is the lower of: 

  • 25% of the benefit value when benefits are taken, and 
  • 25% of £1.5 million (£375,000)

The tax-free cash is protected as a monetary amount if it exceeded 25% of the lifetime allowance on 5 April 2006. The protected tax-free cash entitlement, if it applies, will be shown as a monetary amount on the primary protection certificate. 

Since 6 April 2012 the amount payable is the tax-free cash available on 5 April 2006 increased by 20%. 
 

Primary protection and transfers 

Transferring pension benefits when an individual has primary protection will not affect the tax-free cash amount they can be paid. The only exception to this is where someone doesn’t have registered tax-free cash on their primary protection certificate but has scheme specific tax-free cash protection. In this case, the normal block transfer and wind-up transfer rules described above will need to be complied with in order to protect it. 
 
Protecting pre-6 April 2006 benefits  

What about tax-free cash for those with enhanced protection? 

When it was introduced in 2006 enhanced protection provided full protection from the lifetime allowance charge when individuals took their benefits. There was no minimum benefits value on 5 April 2006 to register for enhanced protection. 
 
Somebody applying for enhanced protection could also apply for primary protection, as backup, if their benefits value exceeded £1.5 million on 5 April 2006. 
 
Until 6 April 2023 there were several events that would cause individuals to lose their enhanced protection, including if they contributed to any arrangements under a registered pension scheme. 
 
As part of the changes introduced for the abolition of the lifetime allowance, the enhanced protection cessation events were removed from 5 April 2023, where the enhanced protection was applied for before 15 March 2023, and a certificate or reference number subsequently issued. 

As a result, the government introduced a cap on the maximum amount of tax-free cash these individuals can receive, set at the maximum amount they could have received as of 5 April 2023. 
 
An individual with an entitlement to tax-free cash of more than £375,000 and more than 25% of the fund on 5 April 2006 could retain their tax-free cash entitlement. Their maximum tax-free cash entitlement would have been shown as a percentage on their enhanced protection certificate. 
 
Since 6 April 2023, their tax-free cash is still based on this percentage. However, the percentage is applied to their total benefits value on 5 April 2023. 
 
An individual with an entitlement to tax-free cash of more than 25% of their benefits value on 5 April 2006 but less than £375,000 couldn't protect the tax-free cash amount using enhanced protection. However, scheme specific tax-free cash protection may apply.  

Enhanced protection and transfers 

Transferring pension benefits when an individual has enhanced protection and has registered tax-free cash on their certificate (so had more than £375k tax-free cash on 5 April 2006) will not usually affect their tax-free cash amount. Where someone doesn’t have registered tax-free cash percentage on their enhanced protection certificate but has scheme specific tax-free cash protection, similarly to primary protection, the normal block transfer and wind-up transfer rules described above will need to be complied with in order to protect it.
 
When doing a transfer with enhanced protection you need to be careful that it is a permitted transfer (This would only be relevant since 6 April 2023, where they hadn't applied for the enhanced protection before 15 March 2023, and a certificate or reference number subsequently issued).


HMRC Pensions Tax Manual - PTM176310 - Lump sum and lump sum and death benefit allowance: Enhanced protection 

At a glance

 

Is protected tax-free cash normally kept?

Key point 
Ordinary transfer No Protection is lost
Block transfer Yes, if conditions met More than one member, same transaction, all rights transferred 
Wind-up transfer Yes, if conditions met Scheme winding up and receiving arrangement is typically a Section 32 
Primary protection with registered tax-free cash amount on the certificate Yes Transfer does not normally affect the protected amount 
Enhanced protection with registered tax-free cash percentage on the certificate Yes Check permitted transfer requirements

One final point to bear in mind. 

As well as all the conditions explained above, the receiving scheme/insurer must be willing and able to accept the transfer. 

Frequently asked questions

If the individual had enhanced or primary protection the benefits could be transferred to another registered pension scheme after 5 April 2026 and they would keep the higher tax-free cash entitlement.

However, the same would not apply to somebody with a tax-free cash entitlement of more than 25% who had not applied for primary or enhanced protection.

These people will lose their entitlement to the higher amount of tax-free cash under the new plan, unless they transfer as part of a 'block transfer' or in certain circumstances on the wind-up of an occupational scheme.

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.

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%.

Yes, if the block transfer conditions are met each time. If it is a wind-up transfer, tax-free cash protection is maintained if all three conditions continue 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.

No, it would have to be to a Section 32.

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.

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.