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Abbey says clients are missing benefits as IFAs ignore S32 plans

IFAs are shunning S32 buyout plans in favour of straightforward personal pensions, even though they have valuable benefits for clients, says Abbey National for Intermediaries.

Head of pensions and retirement Mike Brown says clients may be missing out on improved death benefits and tax-free cash over 25 per cent if they choose to transfer their occupational scheme to a personal pension rather than S32 contracts, which were previously seen as the more traditional transfer policy.

But some advisers say only a fraction of pensions have tax-free cash in excess of 25 per cent and a change to death benefit rules last year means most personal pension holders now have the same death benefits as S32 contract holders. They argue that S32 death benefits are now only better for high earners and controlling directors.

Brown says: “People wrongly think S32 contracts are old-fashioned but going into a personal pension can mean death benefits are restricted and tax-free cash is less.”

BestInvest director (life & pensions) John Turton says: “I would have agreed a year ago but since last year, when the rules said personal pensions could return the whole lump sum on death, the market for S32s was substantially reduced.”

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