Section 32 buy-out plans meaning

In practice, a section 32 buy-out plan is an individual deferred annuity policy used to receive a transfer value from an occupational pension scheme, with the insurer assuming the scheme’s liability for the member’s preserved benefits. Established by section 32 of the Finance Act 1981, the statute underpins the contract; “buy-out plan” is a market description. Typical use is on scheme wind-up or when a member leaves service and takes a transfer; the policy is in the member’s name and secures benefits, including any Guaranteed Minimum Pension (GMP), revaluation and increases. Benefits are subject to tax and preservation rules; many policies contain restrictions (for example, an obligation to purchase an annuity sufficient to meet GMP and limits on drawdown or pension freedoms). Pre-2012 transfers may include “protected rights” from contracting-out. Practical significance: the plan discharges trustees/employer from liabilities and places investment risk with the insurer; advisers should review guarantees (including any guaranteed annuity rates), escalation, early-retirement terms, charges and transfer options. Usage is consistent across England and Wales, Scotland and Northern Ireland. In Ireland, the comparable vehicle is a buy-out bond/personal retirement bond under the Pensions Act 1990; the UK “section 32” label does not apply.