Tax Free Cash Opportunity – Section 32 Buy-Out and Executive Pension Plans
The Government outlined a raft of pension legislation changes in the March 2014 Budget Statement, some of which have come into effect.
Buried within the legislation are temporary changes to a small pool of old style occupational pension schemes including Section 32 buyout contracts and executive pension plan (EPP) arrangements. Restrictions have been temporarily lifted which will preserve tax-free cash amounts greater than 25% of the fund value on transfer to another pension arrangement.
Until now, a pension transfer from such policies meant giving up the higher lump sum entitlement unless more than one arrangement from such a scheme was transferred at the same time. There is now a narrow window of opportunity to transfer these arrangements without losing the enhanced tax-free cash. You will need to undertake the transfer before April
2015 and also take the tax-free cash before October 2015. The pension has to be transferred in its entirety at the same time. To take advantage of this opportunity, you need to have reached 55 already, or reach age 55 during the current tax year.
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This action is only appropriate if you want to take the tax-free cash before October 2015. Missing this deadline means the enhanced tax free cash protection is lost, which could prove to be a costly mistake. One option is to draw the enhanced cash sum after the transfer and place the remaining funds in drawdown. You would not have to draw an income – taking the enhanced lump sum and simply designating the remaining funds for drawdown will meet the requirements.
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