Buyout policies were used to transfer pension rights built up in a workplace scheme into an individual pension policy.
Buyout policies were introduced in the early 1980s under the Finance Act 1981. They were largely superseded by personal pensions when these were introduced on 6 April 1988, but you may continue to hold a buyout policy.
How buyout policies work
Buyout policies are individual contracts between you, the member, and the pension provider. The pension provider is usually an insurance company. They were also known as Section 32 buyout policies or s32 buyouts.Buyout policies were used by both employers and workers to transfer pension benefits built up in a workplace pension to an individual policy, usually after the worker had left the employer’s service or if the scheme was winding up .
These are special schemes as they were able to receive transfers which included contracted out benefits known as Guaranteed Minimum Pensions (GMP), these broadly represent pension income that you would have received from the State Earnings Related Pension Scheme (SERPS) had you not contracted out.
There is a requirement placed upon these schemes to pay out at least the GMP at retirement and the provider should make up any shortfall in the policy.