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There’s life in the old s32 yet

I am very pleased that the Revenue has changed its mind about allowing schemes which wind up after A-Day to protect tax-free cash greater than 25 per cent, where the receiving vehicle can be any registered scheme.

We lobbied the Revenue for this because we thought it was in the best interests of the pension market. We were aware that, under the old rules, many people would not make the cut-off date of April 6, 2006, whether they were in an individual section 32 or an occupational pension scheme which was planning to wind up.

Some people seem to be interpreting this as the result of pressure put on the Revenue by the FSA because the regulator is worried about the potential misselling of s32s. I have it on the best Revenue authority that this interpretation is wrong. Anyway, if this theory were correct, surely the action taken by the Revenue would have been to remove any restriction on carrying forward a tax-free entitlement greater than 25 per cent in any transfer at all?

Based on our current under- standing of what the new regulations will say, we expect there will be two particular categories where action will still have to be taken before A-Day to protect tax-free cash above 25 per cent if clients are not happy where they are for the long term. The first category is members of occupational schemes, including executive pension plans, where there is no prospect of wind-up and where members cannot force a winding-up.

The second category could be an arrangement under a multi-employer or central trust if there is no prospect of teaming up with a “buddy” to do a block transfer after A-Day. It depends whether the regulations will define the scheme as the multi-employer trust, because the trust is not winding-up. For occupational schemes where the scheme is trying to wind up but will not have completed that by A-Day, trustee-proposed s32s are now a very viable option to protect tax-free cash of more than 25 per cent. EPPs under their own trust will be able to wind up after A-Day and protect tax-free cash in excess of 25 per cent, regardless of what type of tax-registered pension vehicle they transfer to – a Sipp, stakeholder, personal pension, s32 or another occupational scheme.

I suspect that a lot of existing EPPs will think hard about winding up as a result of the tidal wave of legislation, which bears particularly hard on occu- pational schemes. But that has to be balanced against market value adjustments and potential loss of things such as guaranteed annuity options. There are plenty of issues that need to be addressed for each type of client – and fast. The outcome of the lobbying on the protection of tax-free cash shows the Revenue is willing to respond to well-reasoned proposals. This gives grounds for hope on the IHT issue which has yet to be resolved.

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