Pension Release Schemes

If you were to look at the whole market place of pensions, the questions has to be are they all potential pension release schemes? The answer to that is no.

Most pensions are accessible early and could certainly be considered as potential pension release schemes. However, there is a minority that aren’t and not necessarily the ones you would have thought of.

Pretty much all government sponsored pension schemes could become pension release schemes. Whether that is advisable is another question. It may not be possible to access them directly but that doesn’t prevent you from transferring them into a personal arrangement and then releasing funds. This is possible because a personal pension is something that would be considered as one of the pension release schemes, so by transferring away from the pension that doesn’t give you direct access; you then join one that does.

Interestingly enough, nearly all company pension schemes have a right to transfer, thus allowing conversion into pension release schemes. One exception to this is pre 1986 Armed Forces pension schemes, that is to say members of the scheme who left before that date. The rules of the scheme do not provide for a statutory right to transfer – so if you can’t get the money out direct, you don’t have the option to transfer into pension release schemes.

There are also some individual arrangements that are not considered pension release schemes and do not allow transfer to one that is. These are certain Section 32 Buy Out Bonds (S32). These bonds are pension plans that have already accepted a transfer from a defined benefit pension scheme, such as a Teachers’ Pension Scheme or other such Final Salary schemes.

An individual who has left teaching and transferred their pension to a S32, also transfer a number of “rights” that originally applied to their Teachers’ pension but now also apply to their S32. The “right” that prevents onward transfer to pension release schemes is the Guaranteed Minimum Pension (GMP). The S32 must guarantee that a minimum pension is paid at normal retirement age, irrespective of whether there is enough money in the policy to cover the GMP or not.

If there are insufficient funds, the insurance company that issued the S32 will have to make up the shortfall out of their own reserves. This is a valuable guarantee. If this is the case they may prevent transfer to pension unlocking schemes because there is not enough money to cover the GMP. Pension release schemes such as a personal pension do not have to provide the guaranteed element of a GMP. However, just because they could accept a transfer does not change the fact the existing S32 may not allow a transfer.