Section 32 buyout plans (commonly known as Section 32s) are individual pension plans subject to FCA regulation. They are designed to accept benefits transferred from an occupational pension scheme.
Are permissions required?
Section 32s are personal pensions, not occupational schemes, however they will often include safeguarded benefits, which will mean the firm is likely to require full or limited pension transfer permissions. In the majority of cases, pension transfer specialist sign off is required.
Some examples of safeguarded benefits:
- Guaranteed annuity rates
- Guaranteed minimum pension benefits
- Other salary related benefits, such as post-1997 contracted out rights accrued under the reference scheme test, also known as Section 9(2B) rights.
Safeguarded benefits do not include:
- Guaranteed lump sums which have no income guarantee, such as lump sum death benefits
- Guaranteed investment returns during the accumulation phase, such as under a with profits contract, unless there is also an income promise or guarantee such as a guaranteed annuity rate
- Scheme specific protected tax-free cash sums
- Guarantees held by the scheme trustees under a separate policy (third party promises)
Limited or full pension transfer permissions?
- Where the safeguarded benefits are restricted to GARs, firms are only required to hold limited pension transfer permissions. No PTS sign off is required.
- Where the plan has any other safeguarded benefits, then full permissions and PTS sign off will be required.
Careful analysis of existing Section 32 plans will help ensure you only provide advice within your firm’s regulatory scope and that you obtain PTS sign off when required.
Tony Lewis is head of compliance and technical at Threesixty