Transfers In and Out Fact Finding (Money Purchase Scheme)


Money Purchase Schemes 

In a money purchase scheme, often referred to as a defined contribution scheme, the scheme rules will describe how a member's benefits are to be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of transfer benefits for a money purchase scheme.

The case studies that you will be referred to in the examinations will include one (1) money purchase scheme:

  • The OPQ Retirement & Death Benefits Plan (which is not contracted out)

TIP: From 6 April 2012 it was no longer possible for money purchase schemes to be contracted out.

There are two (2) distinct transfer calculations and candidates will be tested on each of these in the examinations:

  1. Transfers out (for members who are "preserved")
  2. Transfers in (for members who are “active”)


Fact Finding

1. How are transfers out handled?

If a member leaves his company with entitlement to preserved benefits from his period of membership of that company`s money purchase scheme, the member can choose to leave his preserved benefits within the scheme (where they will continue to be invested) or he can choose to transfer the value of those preserved benefits to the occupational pension scheme of his new employer or to an insurance company.

The transfer value available will be the current value of the member`s fund, comprising the value of the member's contributions (including AVCs) and the value of the employer's contributions.

2. How are transfers in handled?

When a transfer in is received by a money purchase scheme, it is important to identify the correct split between member contributions (including any AVC split) and employer contributions.

Tip: This is key because the member may wish for each element of the transfer in to be invested in separate funds (e.g. life-style for member and employer contributions but free-style for AVCs).

It should be noted that, for a transfer in from a salary related scheme that was contracted out prior to 6 April 2016, the value of any Guaranteed Minimum Pension (GMP) cannot be accepted by money purchase schemes as contracting out for these schemes was abolished from 6 April 2012 (with any Protected Rights being converted to normal scheme benefits).

3. How are communications with the member / trustees made?

Once the benefits have been calculated they need to be communicated to the member and / or trustees of the scheme in the form of a letter. The examinations will expect candidates to write letters to include all the facts and figures that are required to be communicated.

For the examinations, candidates will be expected to produce one letter for a transfer in case study and one letter for a transfer out case study.

For transfer out case studies from the OPQ Retirement & Death Benefits Plan all letters should include the following (where applicable):

1. Date of transfer out calculation

2. Total amount of transfer value

3. of each fund and split of individual values within those funds (member regular, employer regular and AVCs)

4. Statement that transfer value is not guaranteed

5. Options for the use of the transfer value (e.g. occupational pension scheme, insurance policy or personal pension arrangement)

6. Statement that if the transfer proceeds then no benefits will remain in the existing scheme

7. Statement that no financial advice can be given

8. Requirement for member’s written authority to proceed

9. Reference to "Pension Scams"

For transfer in case studies from the OPQ Retirement & Death Benefits Plan all letters should include the following (where applicable):

1. Date of transfer in calculation

2. Total value of transfer in

3. Statement to acknowledge receipt of written request to proceed with transfer in

4.  of the composition of the transfer in (i.e. member contributions, employer contributions and AVCs.)

5. Details of unit allocation following transfer in (i.e. member units, employer units and AVC units split by fund)

6. Statement that the benefits provided will be subject to the rules of the OPQ Retirement & Death Benefits Plan

7. Statement that no benefits remain in the ceding scheme

These lists are not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.