Section 32 (S32)
policies are available from insurance companies for the purpose of
taking a transfer from an occupational pension
scheme. The transfer can be effected by the scheme member or by
the trustees. A S32 can also be used by someone who is awarded a
share of their ex-spouse's occupational pension as part of a
divorce settlement.
After the transfer has been paid into the S32, normally no
further contributions can be paid.
Q & A's
Under the new pension regime introduced from 6 April 2006, the
differences between the 2 types of arrangement have reduced. The
main differences are;
- the PPP can accept new contributions and further transfers from
other schemes while a S32 cannot.
- if the transfer is coming from an occupational pension scheme
which is or was contracted out of the State Second Pension scheme
and so contains an element of Guaranteed Minimum
Pension (GMP), a S32 must guarantee the payment of the GMP
whereas the PPP does not.
- where part of the transfer includes a GMP, in a S32 the ability
to take 25% of the final fund value as a tax-free lump sum is
restricted to that part of the transfer that is not used to buy the
GMP. If the transfer was made to a PPP, 25% of the whole fund could
be taken as a tax-free lump sum.
- the facility to spread the taking of your benefits over a
period of time, known as staggered vesting or phased retirement,
only applies to a PPP and not a S32.
This should be examined in the same way as any other transfer.
You need to investigate the possibility of a transfer penalty being
imposed on the value of the S32 and, if so, you have to be assured
that you are likely to make good this loss under the personal
pension plan.
A transfer cannot proceed if there is a Guaranteed Minimum
Pension (GMP) and the transfer value is not sufficient to
meet the cost of the GMP, unless the new provider is willing to
meet the shortfall.
This was true until 5 April 2006. However, under new rules,
effective from 6 April 2006, this restriction was removed.
Moreover, if the insurance co agrees, any underpayments from past
years can be made good.
