Pensions in-specie transfers – when, why and how to make a transfer
Stephen McPhillips, technical sales director, Dentons Pension Management, looks at the reasons for in-specie transfers of assets between pensions schemes, which assets typically it applies to, who can authorise a transfer and the process involved.
The ability to transfer pension scheme assets from one registered pension scheme to another has been a longstanding feature of UK pensions legislation. In the majority of cases, it is likely that the transfer will have taken place in the form of a transfer of cash from the transferring scheme across to the receiving scheme. However, the option can exist, in certain circumstances, for the transfer to take the form of a movement of actual investments from one scheme to another – a so called “in-specie” transfer.
What exactly is an in-specie transfer?
Typically, an in-specie transfer will involve an asset or assets of a registered pension scheme being legally re-registered from one scheme across to another. Indeed, the terms “re-registration” and “in-specie transfer” are often used interchangeably. Hence, rather than an asset being sold to create cash, which in turn is then transferred to the receiving scheme as cash, in an in-specie transfer situation, the asset is not sold. Instead, the asset is retained “as is” and the legal ownership is changed through the re-registration process. Once this process is complete, the asset has been moved legally from one scheme to another, representing some / all of the member’s benefit entitlement moving from transferring to receiving schemes.
Why might a scheme member wish to transfer in this way?
There could be a number of reasons why the member may not wish to dispose of the asset to enable a transfer to take place. One such reason may be the fact that the asset is illiquid and / or has a limited or no secondary market and cannot easily be sold to create cash to enable a pension transfer / switch to take place. Another reason may be that the asset’s value is currently depressed (perhaps due to adverse market movements) and the member does not wish to crystallise an investment loss. One further reason could be that the member wishes to retain the asset whilst wishing to change pension scheme provider; perhaps because of service / administration issues with the current provider. Whatever the reason, in-specie transfers are reasonably common in self invested pension schemes such as self invested personal pensions (SIPPs).
What types of assets can be transferred in this way?
There are a wide range of assets that might be capable of being re-registered / transferred in-specie. These can include quoted and unquoted shares, unit trusts, open-ended investment company funds (OEICS), investment trusts, trustee investment plans, and so on. In fact, it is also possible to transfer freehold/leasehold title of commercial properties in bricks and mortar form from one scheme to another – with the involvement of a solicitor to deal with the re-registration of the property on the relevant Land Register.
Who decides whether the asset can be re-registered?
It will be down to both the transferring and receiving schemes to determine whether the asset in question can be transferred in-specie / re-registered. In turn, this may be dependent upon the underlying structure of the investment and the way in which it is currently legally owned. The investment provider itself may not allow a re-registration to take place, but assuming that the asset can be transferred in this way, both the transferring and receiving scheme providers are likely to have the final say on whether or not the asset can be re-registered. It is not a foregone conclusion that such a transfer will always be possible. For example, the receiving scheme may not wish to accept an asset that is known to be distressed or “toxic” in nature, nor one which is known to be very difficult to administer on a day to day basis.
It is vital, therefore, that the options available to the member are fully assessed prior to any decision to make a pension transfer / switch is made.
What might a process map look like?
Requirements are likely to vary between providers / scheme administrators, but a potential process for an in-specie transfer from SIPP to SIPP might be as follows:New SIPP – assesses acceptability of asset(s) in principle for inclusion in its SIPP
• New SIPP – outlines likely charges for the in-specie transfers of the asset(s)
•New SIPP – established, as a vehicle into which the asset(s) is / are transferred
• New SIPP – liaises with existing SIPP regarding asset(s) to be transferred
• Member – appoints Solicitor(s) to act for existing SIPP (transferring scheme) and new SIPP (receiving scheme) in the legal transfer of property from SIPP to SIPP (if applicable)
• New SIPP – appropriate platform / stockbroking accounts opened to receive assets (if applicable)
• New SIPP – confirms ownership of asset(s) once re-registration process is complete
What are the timescales?
The timescales will vary depending on the asset(s) to be transferred. Whilst it might be possible for investment funds to be re-registered within a few weeks, it could take several months for a commercial property or other complex assets to be transferred, and this should also be borne in mind when considering whether to transfer assets between schemes rather than cash.