RPSM02104010 - Technical Pages: Registering a pension scheme with HMRC: deferred annuity contracts (buyout policies, section 32 contracts and assigned policies): What is a buyout policy or section 32 contract?

What is a buyout policy or section 32 contract?

This is a policy or contract bought from an insurance company, using funds from an approved retirement benefits scheme, or from 6 April 2006 funds from a registered pension scheme. It will provide an annuity to the member at some time in the future. It is therefore always a deferred annuity contract when purchased. A deferred annuity contract stands apart from the pension scheme from which it arose.

Such contracts are often referred to as ‘section 32 policies’ as a consequence of a provision in section 32 Finance Act 1981, which related to deferred annuity contracts.

The member's benefit rights have been "bought out" of the registered pension scheme, and such policies and contracts are also widely known as "buyout" policies or contracts.

A member may transfer their benefit rights to an insurance company of their choice. A member's benefits may be secured by the purchase of more than one policy, or from more than one insurance company.

A member's pension rights could have been transferred into a section 32 contract or buyout policy (deferred annuity contract) if, for example

• the employer's scheme of which they were a member has been wound up and no longer exists, and members' benefits were transferred out of the scheme before completion of the winding-up, or
• the member left service with the employer whose scheme they were a member of, exercised their right to transfer their benefit rights out of the scheme (see RPSM14100030), and chose to transfer to a deferred annuity contract rather than another employer's scheme, personal pension, or stakeholder pension.