TPAS - The Pensions Advisory Service

Section 32s

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.

S32 policies are treated by HM Revenue & Customs (HMRC) as occupational pension schemes.

After the transfer has been paid into the S32, normally no further contributions can be paid.

Q & As

What are the main differences between a S32 and a Personal Pension Plan

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.

I have a S32. I have been advised to transfer it into a PPP. Should I do this?

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 PPP.

I had a S32 and am now drawing the pension from it. When that pension started I was promised annual increases of 8.5%, subject to inflation. For some years now my annual increases have been much lower. When I complained to the insurance co they claimed that HMRC would not let them pay more than the rate of increase in the Retail Price Index. Is this true and is there anything I can do?

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.