Posted December 3rd, 2010
Do you know the difference between an internal transfer and an external transfer in relation to pension sharing?
It is important that you do because the consequences of choosing the wrong one can be expensive.
Internal transfer – this is where the pension scheme deals with the pension share by way of an internal transfer of benefits between one party and the other (no benefits transfer away from the original pension scheme).
A pension credit is created and this will either be dealt with by offering shadow membership (i.e. matched benefits with the existing scheme – final salary for example) or alternative benefits will be offered. Sometimes these can be significantly less valuable than exact shadow membership and so it is worth checking first. Sometimes you have a choice other times you don’t.
The other route is an external transfer – this is where the pension scheme involved deals with pension sharing by way of an external transfer. i.e. they insist that the pension credit be transferred out to a new arrangement of the pension credit holder’s choosing. Therefore, these benefits are automatically different to the existing (final salary) scheme but which scheme should you transfer to?
So it pays to check what is on offer when pension sharing before entering negotiations. If you know that shadow membership is available this can be very valuable. But what if you have to transfer out would you know what to do?
I keep a check on which pension scheme offers what. If you would like to know more about internal and external transfers when pension sharing, please contact me on 0800 092 1220 or send me an email – email@example.com