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Tax move to kill off s32 business

The pre-A-Day section 32 market has been virtually killed off by a Revenue & Customs’ move to block unnecessary pension transfers, says Norwich Union.

NU head of pensions Iain Oliver says it is no coincidence that this move follows swiftly from the FSA’s warning that it will closely monitor all section 32 business and clamp down on anything it classes as churning.

Oliver believes the regulators were spurred into action after seeing a number of providers market regulation changes as a driver for s32 business.

The Revenue’s move to ensure that people in schemes that wind up after A-Day will have full tax-free cash protection removes the basis for the vast majority of s32 adv- ice, he says.

This makes s32s a very niche product suited for deferred members or those transferring from more restrictive old s32 contracts, adds Oliver.

In a separate move, the Revenue has also effectively stripped all benefits from clustered s32s, rendering them inert as an IHT planning tool.

Standard Life marketing technical manager John Lawson says clustered s32s, which enable holders to phase their tax-free cash payments will now face IHT charges on any unvested clusters in over 95 per cent of cases.

Scottish Equitable pensions development manager Rachel Vahey cautions that the Revenue’s wording is not clear and s32s remain valid for some clients.

Oliver says: “There has been a campaign by some providers to use Revenue rule changes to justify s32 sales. When you hark back to what the FSA said, it is no coincidence or surprise to me that the Revenue made changes to the rules straight after this.”

Vahey says: “That is a bold statement to make at this juncture. This does seem to be a sea-change by the Revenue but we need more detail from them.”

Lawson says: “For 95 per cent-plus of the age 55-75 population, segmented sect- ion 32s offer nothing that an EPP or other occupational money-purchase scheme cannot also offer.”


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