Certain older pension contracts give the policyholder the right to higher than 25% Tax Free Cash and until now transferring away from these types of contract generally meant giving up the right to the higher lump sum.
However, for the time being, restrictions are being lifted, which could preserve tax free cash amounts, which are greater than 25% on transfer. Until April 2015, some policy holders can transfer to a new provider on their own without losing their lump sum protection, as long as they transfer all their rights from the old pension in one go, the transfer happens before 6th April 2015 and all tax free cash under the new pension is taken before 6th October 2015.
This pension transfer relaxation provides a short window of opportunity for individuals facing retirement with protected lump sums to move out of inflexible legacy pensions, into a more contemporary contract, which will better suit the proposed changes to pensions in April 2015.
The transfer relaxation is only of benefit if an individual wants to take their lump sum before October 2015. Missing this deadline means the lump sum protection is lost, which could be a costly mistake for the individual.
Some individuals might not need to take advantage of the new pension flexibility. A hand-full of providers, including Standard Life have already changed legacy contracts to allow 'unsecured' (drawdown to drawdown) transfers, which allow the protected tax free lump sum to be taken from the old plan before transferring the balance to access flexibility. Pensioners with this option don't have to transfer before April or take their tax free cash before October 2015. They can take their lump sum and then move to a flexible income vehicle at anytime.
If you are planning on taking advantage of the new pension transfer flexibility, it is important to speak to a financial adviser to make sure that possible implications of making the transfer don't overshadow the benefits.