Glossary · UK
What is Buyout Policy (Section 32)?
An individual pension policy, also called a Section 32 policy, used to receive a transfer from an occupational pension scheme, often when that scheme is winding up.
Full Definition
A buyout policy, also known as a Section 32 policy after the section of the Finance Act 1981 that created them, is an individual insurance-company pension policy designed to receive a transfer of benefits from an occupational (workplace) pension scheme, most commonly when that scheme is winding up, being bought out by an insurer, or when a member of a defined benefit scheme wants to secure their benefits outside the original employer's scheme. Unlike a standard personal pension transfer, a Section 32 buyout policy can preserve certain valuable features of the original occupational scheme, such as a Guaranteed Minimum Pension (GMP) built up from contracting out of the old State Earnings-Related Pension Scheme, and it must, by law, provide benefits at least equal in value to those given up. Because buyout policies were sold heavily in the 1980s and 1990s and can carry complex guarantees, protected tax-free cash entitlements above the standard 25%, or GMP underpins that make transferring out again or accessing pension freedoms complicated, anyone holding one considering a further transfer or drawing benefits usually needs specialist, and sometimes legally required, financial advice. Older buyout policies are one of the more common types of “old, forgotten pension” that people rediscover through the Pension Tracing Service, since the insurer administering them may be unfamiliar and the original employer's scheme may no longer exist.