Once upon a time, three goats lived in a pre-A-Day field. The smallest one was called Little Billy Goat Gruff. The next one was bigger so he was called Big Billy Goat Gruff. But the third one was the biggest of all and was called Great Big Billy Goat Gruff.
At the end of their field was a river and across the river was another field. Now this field – the post-A-Day field – was currently empty and the grass grew long and very green.
Little Billy Goat Gruff could see the chance to get even more lovely tax-free cash than he already had by crossing into the post-A-Day field. Big Billy Goat Gruff said he could see the chance for them all to co-invest in holiday property and buy to lets in the post-A-Day field. Great Big Billy Goat Gruff said he could see the chance to pass his pension fund on to his kids (pun intended) once his time had come to go to goat heaven. They all longed to cross over the river.
Now there was a low bridge across the river but under it lived a horrible troll, the Finance Act troll, who liked to eat tax-free cash better than anything else. So the three goats never dared to cross the bridge into that lovely empty field in case the troll caught them. All three goats had been wise and saved some of the profits they had made from the family cheese business in preparation for their retirement. They had also wisely invested in occupational pension schemes and each had built up tax-free cash of more than 25 per cent of their fund. None of them had big enough funds to worry about enhanced or primary protection.
Each goat had once owned an executive pension plan but Great Big Billy Goat Gruff had recently been tempted to transfer his EPP into an all-singing, all-dancing section 32 plan. He assured his brothers that this section 32 had the ability to do everything known to smart pension people without being caught by the Finance Act troll but his brothers were not so sure.
Stuck in their pre-A-Day field, the goats grew progressively hungry for the riches they could see across the river. So they set about devising a scheme to cross the river without being caught by the troll. The starting point for this plan was a detailed examination of the Finance Act 2004.
Little Billy Goat Gruff recalled reading a smart idea in one of the financial trade papers (probably Money Marketing) which would allow him to cross the bridge and get more tax-free cash. But to do so he had to pay just one more pound into his EPP in the post-A-Day field. So he set about studying the Finance Act for proof that this would work. Sure enough, in Schedule 36, in a section about protecting pre-A-Day tax-free cash rights above 25 per cent, was a very complex calculation that not only allowed him to keep the tax-free cash he already had but offered the chance to get more cash by paying in just one pound on or after April 6, 2006.
Little Billy Goat Gruff told his brothers he was going over to the post-A-Day field to get some more of that lovely tax-free cash. But before he could do so, Big Billy Goat Gruff stopped him. Big Billy Goat Gruff had also been studying the Finance Act and had an even better idea.
In the same section in Schedule 36, Big Billy Goat Gruff had discovered a paragraph about block transfers. So long as at least two members of a pension scheme (scheme A) transferred all their funds to another pension scheme (Scheme b) on or after April 6, 2006, these members could keep their pre- A-Day tax-free cash above 25 per cent. Furthermore, they could build up more tax-free cash rights in the post-A-Day field. Best of all, scheme B could be a self-invested personal pension plan.
All three goats had long coveted a Sipp as they knew this would allow them to pool their funds together to buy property. But until they had seen the post-A-Day field, they also knew that transferring their funds to a Sipp would restrict their tax-free cash to 25 per cent.
Little Billy Goat Gruff and Big Billy Goat Gruff were members of the same EPP (scheme A). As both goats were happy to transfer their EPPs to the same Sipp (scheme B), this plan seemed to work and offered Little Billy Goat Gruff and Big Billy Goat Gruff all the things they wanted.
So they set off to cross the bridge together. Great Big Billy Goat Gruff shouted after them: “Be careful. Remember the troll. He will eat your extra tax-free cash.” But off went Little Billy Goat Gruff and Big Billy Goat Gruff trotting over the bridge.
When they were halfway across, the troll suddenly put his head out and said: “Who's running over my bridge?” “It's only Little Billy Goat Gruff and Big Billy Goat Gruff,” said the goats.
“I am going to eat your excess tax-free cash,” replied the troll.
But Little Billy Goat Gruff and Big Billy Goat Gruff showed the troll the Finance Act paragraph about block transfers and the troll had to concede that he was not allowed to eat their extra tax-free cash. “You may go across,” said the troll.
So Little Billy Goat Gruff and Big Billy Goat Gruff trotted across the bridge to the post-A-Day field and transferred their EPPs to a Sipp. They quickly set about pooling their funds so they could invest in buy to lets.
Great Big Billy Goat Gruff could see what fun his brothers were having saving for retirement in a way that suited them. He dearly wanted to join them so, without studying the Finance Act, off he went trotting across the bridge.
When he was halfway across, the troll put his head out and said: “Who's running over my bridge?” “It's only Great Big Billy Goat Gruff,” came the reply.
“I am going to eat your excess tax-free cash,” said the troll, showing Great Big Billy Goat Gruff the appropriate paragraph from the Finance Act. Sure enough, this paragraph said that transferring to a post-A-Day field after April 6, 2006 gave the troll the right to eat any extra tax-free cash unless the transfer was a block transfer. As the section 32 was a one-goat scheme, this ruled out a block transfer, which needed at least two goats. So Great Big Billy Goat Gruff turned back towards the pre-A-Day field.
Great Big Billy Goat Gruff sat in the pre-A-Day field and dreamed of the post-A-Day field and the riches it offered:
The smart idea that allowed even more tax-free cash.
The chance to pool his fund with his brothers' funds to buy property and Bringing his kids into the same pension scheme as him, so he could pass on some of his pension funds to them and give them a good start in life.
But Great Big Billy Goat Gruff was all alone, stuck in his all-singing, all-dancing section 32. No way of using the smart idea, no chance of pooling funds with his brothers and, worst of all, no way of bringing his kids into the same scheme as him.
Great Big Billy Goat Gruff spent the rest of his life in the pre-A-Day field, ruing the day that he transferred out of his EPP into the all-singing, all-dancing section 32, and died a bitter old goat.
And the troll? Safe in the knowledge that Great Big Billy Goat Gruff would not attempt to cross the bridge, the troll went off to Italy to check up on someone who he suspected was enjoying a holiday home owned by a pension scheme without paying the appropriate tax charge.