Section 32 Pensions for Expats – What is it?
A Section 32 Pension is an old pension policy, used mainly pre 1988 to transfer pensions rights that had been built up in a workplace scheme, into an individual pension policy. They were often used if an occupational scheme was about to be wound up or the employee no longer working for the company scheme in question.
Also referred to as a “Buyout” policy, it is an individual contract between the member (you) and the pension provider (usually an insurance company). It specifically allowed the transfer in from schemes of contracted-out benefits also known as GMP (Guaranteed Minimum Pensions). These are often associated with defined benefit pensions as the pension provider is, in essence, providing a guaranteed income for life.
Section 32 Buyout Versus Personal Pension
Any Section 32 Buyout policy cannot receive additional one-off transfers in or regular contributions. A personal pension can.
Section 32 offers a Guaranteed Minimum Pension GMP at a certain retirement age, normally 60 / 65. A personal pension does not offer any guaranteed income for life although you could buy an annuity if you wish.
A Section 32 plan is a one-off member scheme, they usually have protected tax-free cash allowance and restricted access to monies. A personal pension allows Flexi access from age 55 offering the ability to access your monies on an ad hoc basis.
Section 32s are strictly UK pension schemes for onshore residents. Personal pensions allow for international solutions offering multi-currency funds and international management.
Tax-Free Lump Sum (PCLS) Pension Commence Lump Sum
Section 32s allows tax-free lump sum to be taken from age 55 however, if the member was due a larger value under their previous company scheme as of 5th April 2006, the PCLS will be that of the value that could have been paid and not now. For personal pensions, it is simply 25% of the total fund value as of the day they wish to take it.
Should the member die prior to receiving their full benefits then it the death benefits vary depending on the company. Usually, just 50% of the lifetime annuity is passed onto the spouse with the payments ceasing upon the death of the spouse.
Transferring our of Section 32 or Personal Pension
If you wish to transfer out of a Section 32 scheme as you are giving a guaranteed income for life the process will require additional scrutiny and rightfully so. In line with UK pension legislation, you will be required to utilise a UK FCA (Financial Conduct Authority) regulated IFA if the value is over £30,000. They will analyse the offer benefits being offered whilst considering your own personal position and recommend whether to transfer or not. For a personal pension, you do not require this however you should always take advice from a regulated adviser when considering transferring your pension.
What are your options and what can you do?
If you hold a Section 32 pension and would like to discuss your options then the first step should be to speak to a regulated independent financial adviser. Harrison Brook makes expat finance easy. We specialise in transparent low-cost international solutions, working from a UK fee-based model unlike 99% of offshore advisers. Get in touch.