Section 32 Buyout pensions explained
Section 32 Buyout policies were introduced in the 1980s and were used to transfer your pension from your employer to an individual pension if you left a company. They were largely replaced by personal pensions towards the end of that decade, although some people continue to hold them.
These plans would be used if, for example, an employee left their job, or if the company pension scheme was winding up. If you contracted out of the State Earnings Related Pension (SERPs) in the late 1980s or early 90s, your National Insurance Contributions would have been paid into a Section 32 Buy Out pension instead.
Some of these pensions may have special guarantees attached, so it’s worth checking what’s available if you have one.
What should you check?
It’s important to regularly check all your pensions – not just Section 32 Buy Out pensions – to make sure they still match your attitude to risk, and that the fund or funds your pension savings are invested in are performing as you’d expected. It’s also vital to check how much you’re paying in charges, as these will eat into your investment returns.
If you’re not sure how to go about this, seek professional financial advice. We can look to see whether we can improve your pensions on your behalf, and help you decide whether you might be better off transferring to a new plan, or consolidating your pensions, or if you should stay put.
For example, sometimes Section 32 Buyout plans come with valuable guarantees, which means switching to a different plan wouldn’t make sense. People who left final salary pensions by transferring to Section 32 pension had to be offered a ‘Guaranteed Minimum Pension’ by the provider they moved too. This guarantee means their pension income must be no lower than a set amount no matter how the pension fund performs.
Also, some policies entitle you to take more than 25% of your pension as tax-free cash at retirement, and this benefit can be lost on transfer.
If you’ve got a Section 32 Buyout pension and want to know more about it, feel free to contact us. We’ll only advise you to take action if it’s in your best interest.