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Buyout Bond

The Buyout Bond is a simple, flexible plan with tax advantages for individuals and trustees. Its performance is linked to funds of your choosing, and it allows a transfer from an Occupational Pension Scheme or another buyout bond before you begin taking pension benefits. If you have more than one transfer payment, a separate plan will be set up for each one.

Who can take these out?

Trustees of Occupational Pension Schemes or any UK resident who already has a buyout bond with another provider, subject to age limits.

Minimum and maximum age

The minimum age is 18 years and the maximum is 73 years.

Minimum transfer payment

£5,000.

Term

The minimum term is two years.

Advantages

Tax efficiency

There are a number of reasons why a Buyout Bond can be tax-efficient. These include the following:

  • Normally you can take 25% of your fund as a tax-free cash sum when you start taking your pension benefits, although it is possible to take more than this if you have a protected tax-free cash amount.
  • The funds you invest in are free from capital gains tax and generally free from income tax. With less tax paid, more goes towards the growth of your fund.
There may be a tax liability in some circumstances, for example where the total value of all your pension benefits exceeds the Lifetime Allowance when you start to draw benefits. For the 2008/09 tax year this is £1.65 million and it is set to rise in stages to £1.8 million by 2010/11 and remain level until 2015/2016. Your financial adviser will be able to explain this to you in more detail if you think this applies to you.

Death benefit

You can set up your bond in a trust so that when you die its value is passed on to your beneficiaries, generally free from inheritance tax. Any lump sum death benefits will be paid direct to your trustees for distribution in accordance with the trust. If the bond is not in a trust any lump sum death benefit will form part of your estate and can be subject to inheritance tax.

Transfer option

You may transfer to another registered pension scheme, either with Skandia or with another provider.

Flexible retirement options

At your pension age, you can take a tax-free cash sum. With the remainder of the fund you can either choose to take income withdrawal on your fund (subject to a minimum fund size) or use our free of charge Open Market Option to buy a lifetime annuity from the provider of your choice. (Skandia does not offer an annuity product.)

Risks

You need to be aware that there are risks involved in taking out a Buyout Bond and we cannot guarantee the value of your pension fund and resulting benefits for a number of reasons. Some of these are detailed below:

  • The value of your pension fund cannot be guaranteed as it will depend on investment performance.

  • The value of fund units can go down as well as up and investment growth cannot be guaranteed.

  • Tax rules can change at any time, which may affect your bond.

  • The level of pension benefits payable cannot be guaranteed as they will depend on interest rates when you start taking your benefits.

  • If you cancel within 30 days, the amount returned may be less than you paid in and the scheme you have transferred from may not accept you back into the scheme.

  • By transferring, you give up all rights to benefits under your existing pension scheme or contract.

  • If you transfer from your Occupational Pension Scheme, you will no longer have any guarantees. The pension benefits you receive from the Buyout Bond may not match the benefits you gave up.

This web page is only intended as a general introduction to the Skandia Buyout Bond. Full details of the product can be found in the Skandia Buyout Bond Client Guide and Policy Conditions, available from your financial adviser.

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