Extreme care is needed when selecting Section 32 contracts to preserve tax-free cash entitlement in the run up to 6 April 2006 says Abbey for intermediaries.
Unless the individual has opted for protection against the lifetime allowance charge, and their tax-free cash entitlement at A-day exceeds £375,000, the protection for the tax-free cash entitlement is lost if benefits are not fully vested, says Abbey.
Abbey says this can be avoided by transferring before A-day into a Clustered Section 32 contract, which contains more than one arrangement. Clustering allows an individual to take tax-free cash from any number of arrangements to meet their circumstances, without jeopardising their entitlement to tax-free cash of more than 25% of their fund, says Abbey.
Abbey for Intermediaries head of pensions and retirement Mike Brown says: “Transferring to a Section 32 contract will provide a solution for many clients, but it's vital that IFAs take care to select the right Section 32 contract if they are to ensure that their clients retain maximum flexibility after A-day. This can be achieved with a Clustered Section 32, which also offers phased retirement, income drawdown and self-investment. ”