Why transfer a Section 32 pension?

First of all, moving a pension to buy an annuity to pay GMP income is not a transfer. This would be called an “Open Market Option”, an “OMO” for short. If you want to know more about this then see GMP and Annuities.  

A transfer would moving the entire pot to a new pension. It was once possible to transfer a Section 32 and keep the GMP. There are now no providers in the market who will accept a GMP transfer AND let you keep the GMP.  Now, it is only possible to transfer a Section 32 to another pension if the GMP is “converted” upon transfer – meaning converted to non-GMP. 

The main reason many people want to transfer is to lose the GMP requirements. A transfer to a new personal pension or flexi-access drawdown pension would mean the automatic loss of the GMP requirements. But, it would also mean the loss of the guaranteed income. 

So why transfer if you lose guarantees? 

There are a number of issues having the GMP and the guarantees and rules that apply. These guarantees can sometimes mean:

  • No tax-free cash is available
  • You can’t retire early
  • You can’t take flexible benefits and withdraw what you want from the pot 
  • You can’t choose what type of income you want
  • You might have to secure an (expensive) inflation protected income which reduces the initial income 
  • Once in payment the death benefits are based on providing an income for a spouse, and not the full fund value

See GMP disadvantages for more details. 

Some people might want to transfer in order to get better  investment performance. Some Section 32 contracts have very limited fund choice. Indeed many only have one fund andoften this is a with-profits fund, which might not offer any great performance. 

The downside for any transfer is that these guarantees are also lost. See GMP advantages for more details.

Transfer Problems

Even if you want to, it is not always possible to transfer a Section 32 with GMP. There is a technical reason behind this. Effectively, the value of the transfer has to be greater than the value of the GMP.  In the pension industry you would hear this as “covering the GMP”. 

This is a technical calculation, as the GMP is a promised income and does not have an explicit cash value. The company’s actuary (number cruncher) will often do this calculation. He would take the income, look at your age, and how long until the retirement age, and work out in a cash value what the income is worth. An example might help.

Suppose you are 55. You have Pre 88 GMP that at age 65 would need to provide  £2,000 per year. The actuary might say that this would cost £50,000 to buy if you were 65 now.  He then works back from that amount because it is 10 years until the income would be paid. So, he reckons that a £2,000 per year income in 10 years is worth £40,000 now (as the £40,000 would, in his view, probably grow into £50,000). 

In these circumstances, if you have a pot of £39,000 you cannot ordinarily transfer. The cost/value of the income is £40,000 and the pot is lower as it is only £39,000. So the GMP is not “covered” by the transfer value. So at that moment in time you cannot transfer it. In time this might change as the fund could grow, or the cost of the income could drop.  

If in this situation you had a Section 32 worth say £41,000, you could transfer as it is greater than the cost of the GMP. The GMP is “covered” in this example. You can transfer it (and lose the guarantees and do what you want with the pension).   

Sometimes, it is not an actuary who does this calculation. Sometimes, especially if you are at the point of retirement, the insurance company would look at the cost of securing the income using its own annuity rates. If your pension could buy the income, and there was some remaining fund, then the GMP would be smaller than the pot, and you could transfer. 

If you are unable to transfer because your GMP is not covered, then often there is not anything you can do to make the transfer happen. If you are old enough to take benefits, then you can, but if not you have to wait. 

You might want to change how the pot is invested, in the hope you pick better growing funds. But, this is easier said than done, and is not always available.  If you are in this situation and want to discuss it, then please contact us. ,


Cash value transfers

However, some Section 32 companies take a different approach. Some companies will sometimes offer either the fund value or the cost of the GMP if you want to transfer. Such companies that have done this are Clerical Medical and Royal London (and former CIS plans). But this is not for all of their plans.  

So, even if your pot was not big enough to allow a transfer, they would work out how much the value of the GMP income was, and give that amount as a transfer value. This is not offered by all providers, and is not something they have to do. 

Whether they do this to offer greater flexibility or get rid of a long term liability they do not want, is not known.  See Section 32 Companies for more information. 


It is always important to remember the guarantees you will lose if you transfer a Section 32.  Regardless of the fund value, the income that is promised will be paid even if the fund value is not big enough to support it. The provider is responsible for ensuring this money is paid. 

Getting advice

If you want to transfer a Section 32 which has GMP, and if your fund is over £30,000, then it is a legal requirement to get financial advice. 

If you have a pension with GMP and want advice,  or have a question, or just want to have a chat about it with a UK Qualified Independent Financial Adviser, then  phone now on 01793 686393 or contact us online.