retirement

What is an S32 Buy Out Plan?

It is a pension transfer plan scheme where a company pension scheme is transferred to a scheme in the name of the individual member by the trustees of the employer’s pension scheme.  It is a company scheme transfer plan.

Where can pension transfers come from?

• Statutory Schemes - e.g. Government schemes such as the Civil Service Scheme
• Money Purchase Occupational Pension Schemes
• Final Salary Related Occupational Pension Schemes
• Other Section 32 Buy Out Plans
• Free Standing Additional Voluntary Contribution Schemes - FSAVCs 

Can I pay in any more on top?

No additional pension contributions can be paid - the plan only accepts pension transfers from other pension schemes. Contracting out is not available as an ongoing basis and additional transfers cannot be accepted.

What is Guaranteed Minimum Pension GMP?

Part of your National Insurance Contributions are used to pay for your Basic State Pension. In addition, some of your contributions also pay towards a second tier State Pension called the State Second Pension (S2P), it used to be known as SERPS (State Earnings Related Pension Scheme).

For most working employees therefore, they are building up TWO state pensions. However, your company pension if you have one, can elect to 'contract out' of the State System just for this second tier pension and have it paid into your own pension.

Where a final salary company pension scheme 'contracted out' , it used to have to guarantee to provide a minimum pension at least equal to that of SERPS.  This is the GMP.

Therefore some final salary scheme pension transfers have an element of GMP in them.  A S32 Buy Out Plan can receive GMP and continue to protect those guarantees. Transfers in can only be accepted where there are sufficient funds to provide the Guaranteed Minimum Pension liability.  GMP has no unisex annuity requirements.

Excess Over GMP

Any pension benefits that are not linked to providing the GMP part are known as excess pension benefits.

Transfers Between Section 32 And Personal Pension Contracts

A Section 32 plan may be transferred to a Personal Pension but a Personal Pension generally has no need to transfer into a S32 as it has no GMP.

Pension Fund Guarantees

As mentioned earlier, the GMP is a guaranteed pension.

Pension Age

If there are GMP requirements the normal retirement age may have to be the same as the transferring final salary scheme (but benefits under the Section 32 may be taken earlier or later, but no later than age 75). Otherwise the retirement date is chosen by the member and can be any time between 50 and 75 and 55-75 from 2010.

Early Retirement

Transfers which do not include GMP may be taken as early as age 50 (earlier on ill health). Transfers which include GMP can only be taken before GMP retirement age (65 male and 60 female) where the fund value is sufficient to cover the provision of GMP at GMP retirement age or the widow(er)’s GMP at earlier death.

Tax Free Cash

Funds can be used to provide tax-free cash up to the Inland Revenue maximum (excluding the fund being used to provide GMP).  If much of the fund has to be used to provide the guaranteed minimum pension, the balance if any can provide tax free cash. 

Phased Retirement

A single Section 32 Buy Out policy cannot be used for phased retirement although it is possible to divide the transfer value amongst a number of providers. The GMP element can only be with one provider.

Death Before Retirement

The fund in excess of the widow’s GMP, which must be provided, can be taken as a lump sum subject to Inland Revenue normal occupational pension scheme limits. The overall maximum of four times salary plus a return of member contributions (plus interest) is allowed. The balance of the fund can be used to provide a dependant’s pension.    Contact us for Expert Pension Advice.

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