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HMRC internal manual

Pensions Tax Manual

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Member benefits: pensions: lifetime annuity

 

Glossary PTM000001
   

 

Definition of a lifetime annuity
Lifetime annuity options
The level of lifetime annuity payable may only decrease in the specific circumstances prescribed in regulations
Application of a pension sharing order
Circumstances where the level of lifetime annuity can decrease
The open market option
Payment of a pension commencement lump sum in connection with the purchase of a lifetime annuity contract
Guaranteeing a lifetime annuity contract
A lifetime annuity contract and annuity protection
Taxation of a lifetime annuity contract
Transfer of a lifetime annuity from one insurance company to another
Benefits that may be provided under a lifetime annuity contract on the death of the annuitant
An annuity contract purchased and in payment on 5 April 2006

Definition of a lifetime annuity

A lifetime annuity contract can only be purchased from a money purchase arrangement. It may be purchased from either uncrystallised funds, a drawdown pension fund or a flexi-access drawdown fund.

Requirements where the member became entitled to the annuity on or after 6 April 2015

Paragraph 3 Schedule 28 Finance Act 2004

Paragraph 13 Schedule 10 Finance Act 2005

From 6 April 2015 onwards, to meet the lifetime annuity definition the following conditions must be met:

  • the member must become entitled to the annuity on or after 6 April 2015 i.e. if the member became entitled to the annuity before 6 April 2015 that annuity must satisfy the previous lifetime annuity conditions set out below
  • the annuity must be purchased from an insurance company. For the avoidance of doubt, the previous lifetime annuity condition which required the member to have the opportunity to select the insurance company providing the annuity does not apply from 6 April 2015
  • the annuity must be payable for the member’s life or until, if later, the expiry of a specified period (a “term certain”) of any duration for which payment of the annuity is guaranteed. For the avoidance of doubt, the previous lifetime annuity condition which limited the period of a term certain to a maximum of 10 years’ duration no longer applies.

Requirements where the member became entitled to the annuity before 6 April 2015

Paragraph 3 Schedule 28 Finance Act 2004

Paragraph 13 Schedule 10 Finance Act 2005

Where the member became entitled to the annuity before 6 April 2015, the conditions for meeting the lifetime annuity definition were that the annuity contract must:

  • be purchased from an insurance company that the member had the opportunity to select,
  • be payable for the member’s life,
  • be paid at least once a year, either in advance or in arrears,
  • only allow the amount paid each year to either stay level, increase or go down in circumstances prescribed by HMRC regulations - for more details see below,
  • not allow the payment, either directly or indirectly, of a capital sum triggered by the member’s death, (apart from annuity protection) (also see later below), and
  • not be capable of assignment or surrender (except to give effect to a pension sharing order).

If the annuity is guaranteed to be paid for a set period the annuity may be assigned during that period either by the terms of the member’s will, or by their personal representatives in distributing the member’s estate, to allow:

  • a testamentary disposition or the rights of those entitled on an intestacy, or
  • an appropriation of the annuity to a legacy or a share or interest in an estate.

Conditions imposed on the annuity contract

Section 161(3) and (4) Finance Act 2004

Any payment or benefit from a lifetime annuity contract is treated as if it was made by the registered pension scheme that purchased the contract. The contract can only provide benefits that are ‘authorised’ under the tax rules. So the pension must meet the lifetime annuity definition, and any benefits provided on the member’s death must conform with the death benefit rules - see PTM070000.

Any other payment made by the contract will be an ‘unauthorised’ payment, and taxed accordingly.

Case law

There is case law (both tax and other) defining what an ‘annuity’ is. The tax rules set out only the form of benefits that may be paid in respect of funds held in a registered pension scheme and do not determine whether or not a particular contract represents an ‘annuity’. This is for the scheme administrator or insurance company to ascertain, seeking legal opinion where necessary.

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Lifetime annuity options

Paragraph 3(1)(c) and (2) Schedule 28 and paragraphs 1 to 3 & 16 Schedule 29 Finance Act 2004

Paragraphs 30 to 32 Schedule 10 Finance Act 2005

If an annuity is purchased from a drawdown pension fund or funds attributed to a ‘disqualifying pension credit’, it does not generate an entitlement to a pension commencement lump sum. See PTM063230 for more details.

But where a pension scheme provides a pension by purchasing a lifetime annuity from uncrystallised funds, a lump sum payment paid in connection with the annuity purchase may qualify as a pension commencement lump sum. Even if the lump sum payment was made before the annuity was purchased, it may still qualify as a pension commencement lump sum providing it was made in the 6 months before the date on which the annuity was purchased and providing the other conditions for a pension commencement lump sum are all satisfied. If the member dies after receiving the lump sum, but before the annuity is purchased, the legislation deems the entitlement to the lump sum to have arisen immediately before their death.

A lifetime annuity contract may provide the following options:

  • It can be guaranteed so that payments are made for a set period of time of any duration even if the member has died before the end of that period (for annuities purchased before 6 April 2015, the set period could not exceed ten years). See Guaranteeing a lifetime annuity contract for more details.
  • A lifetime annuity can provide the member with annuity protection. See A lifetime annuity contract and annuity protection for more details
  • A lifetime annuity may also provide for the future payment of a dependants’ or nominees’ annuity, on the annuitant’s death. This is commonly called a joint-life annuity. How such a contract is treated for lifetime allowance purposes is covered in PTM088640. PTM063240 explains how the purchase of a joint-life annuity is treated when calculating the maximum-permitted pension commencement lump sum payable.

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The level of lifetime annuity payable may only decrease in the specific circumstances prescribed in regulations

Note: This guidance only applies where the member became entitled to their lifetime annuity before 6 April 2015. Where the member’s entitlement arose on or after 6 April 2015 a lifetime annuity can decrease in any circumstances as set out in the contract, unless that new annuity is the result of the transfer of an annuity already in payment before 6 April 2015, when the old rules continue to apply.

Paragraph 3(1)(d) Schedule 28 Finance Act 2004

Paragraph 13(2) and (4) Schedule 10 Finance Act 2005

The Registered Pension Schemes (Prescribed Manner of Determining Amount of Annuities) Regulations 2006 - SI 2006/568

Tax reliefs are given to encourage pensions saving, so it is important that the tax rules ensure that the pension funds are used for the intended purpose of funding pensions for the life of the member. A lifetime annuity contract provides a means of turning pension capital into an income that lasts for all of a pensioner’s retirement. To ensure that this continues to be the case, there are safeguards within the rules to ensure that a lifetime annuity contract provides a stable and predictable source of income.

Therefore, the legislation requires that a lifetime annuity contract must provide for an income that is not only payable for the member’s lifetime, but provides an income that represents an even spread over that lifetime. The legislation only allows a lifetime annuity contract to provide for an income that decreases over time in very specific and controlled circumstances. These circumstances are set out in regulations (see later below for more details).

Any annuity in which the amount payable either stays level or increases will come within the definition of a lifetime annuity. The amount of income provided by the contract may only be varied by reference to other factors, where that factor is specifically provided for in regulations. Again, see later below for further details.

If the contract provides an income that decreases in circumstances other than provided in the regulations then the contract is not within the lifetime annuity definition. The purchase of that contract will represent an unauthorised member payment (unless it is being used to secure a scheme pension liability).

An exception to this rule is that a lifetime annuity can be reduced to give effect to a pension sharing order (as explained below).

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Application of a pension sharing order

Note: This guidance only applies where the member became entitled to their lifetime annuity before 6 April 2015, since where the member’s entitlement arose on or after 6 April 2015, a lifetime annuity can decrease in any circumstances as set out in the contract unless that new annuity is the result of the transfer of an annuity already in payment before 6 April 2015 when the old rules continue to apply.

Paragraph 3(2A) Schedule 28 Finance Act 2004

Paragraph 13(3) Schedule 10 Finance Act 2005

The level of lifetime annuity payable can be reduced due to the application of a pension sharing order. (See PTM029000)

If an annuitant with a lifetime annuity contract becomes subject to a pension debit under a pension sharing order, the amount of that annuity will have to reduce in order to comply with the order. Without an exemption in the legislation, a reduction in the level of annuity payable to the annuitant would contravene the requirement that the amount of the annuity cannot decrease. The legislation specifically caters for a reduction in these circumstances.

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Circumstances where the level of lifetime annuity can decrease

Note: This guidance only applies where the member became entitled to their lifetime annuity before 6 April 2015. Where the member’s entitlement arose on or after 6 April 2015 a lifetime annuity can decrease in any circumstances as set out in the contract unless that new annuity is the result of the transfer of an annuity already in payment before 6 April 2015 when the old rules continue to apply.

Paragraph 3(1)(d) Schedule 28 Finance Act 2004

Paragraph 13(2) and (4) Schedule 10 Finance Act 2005

The Registered Pension Schemes (Prescribed Manner of Determining Amount of Annuities) Regulations 2006 - SI 2006/568

The annual amount payable to an annuitant from a lifetime annuity may vary from year to year but the circumstances in which the annual amount payable in any year can fall below the amount paid in the previous year are limited. However, providing the annual amount is determined in accordance with one of the following alternative methods we would not consider that any reduction in the annual amount would be subject to the tax charges set out under Consequences of reducing or stopping a scheme pension, other than in the exempted circumstances.

Method One - Indexation

Using this method, where after allowing for any contractual charges, the ‘variation’ is in line with, or by a percentage which does not exceed, the percentage by which the amount would vary if in line with, changes in:

  • RPI
  • the market value of any ‘freely marketable assets’
  • an index reflecting the value of ‘freely marketable assets’.

‘Freely marketable assets’ means assets which are sold on the open market at a price not determined by the member.

Method Two - With profits variations

Using this method, the variation in the annual amount from year to year reflects variable bonuses added because the annuity contract participates in an insurance company’s with profits fund. Such bonuses must be in accordance with an insurance company’s published ‘Principles and Practices of Financial Management’ in relation to with-profits business, as required under section 6.10 of the Financial Services Authority’s Conduct of Business Sourcebook as it stood immediately before 6 April 2006.

Method Three - Indexation/with profits combination

Using any combination of the Method One and Method Two is acceptable.

Method Four - Selected rate of growth linked to Methods One, Two or Three

Using this method, the variation in the annual amount paid from year to year is dependent on the factors used in Methods One, Two or Three but the member selects the starting level of their annuity based on an assumed annual level of growth of between 0% and 5% in the relevant factor to which their annuity is linked. For example, if increases above the starting level are dependent on bonuses being added by an insurance company’s with profits fund, if the with profits fund suffers losses, the amount paid could fall below the level payable in the previous year.

Method Five - Flexible withdrawals

Using this method variations in the annual amount paid from year to year must be determined in accordance with the following conditions.

The first condition is where the amount of the annuity payable is linked to any of the factors specified in Methods One, Two or Three (or any combination of those factors).

The second condition is that a review must be conducted, by the insurance company by whom the annuity is provided, at least once every 5 years of the value of the sums and assets which are applied towards the provision of the annuity.

The third condition is that at the time of the review, the maximum and minimum amount of income that may be drawn in each year until the next review must be determined.

The maximum amount of income which the annuitant may draw is 120% of the annual rate of a level annuity which could be purchased with the sums and assets which are applied to its provision for the member, for the term for which the annuity is provided.

In this context the expression ‘level annuity’ means a single life level annuity if a single life annuity has been purchased. If a joint life annuity has been purchased, then it means a joint life level annuity with the same profile between the joint lives as that actually purchased. Likewise if the annuity being purchased is not an impaired life annuity then one should not compare it with an impaired life level annuity.

The minimum amount of income which the annuitant may draw is half of the annual rate of a level annuity which could be paid upon the assumptions in the preceding paragraph of this condition.

For the purposes of this Method, the annual rate of an annuity which could be purchased with the sums and assets applied to its provision shall be assumed to be:

  • the freely marketable level annuity rate (if any) applicable in the case of the insurance company in question which could be purchased with those sums and assets; or
  • if the insurance company in question does not offer level annuities, the average of three current market annuity rates for a level annuity.

Short-term annuity

The amount of a member’s short-term annuity must be determined in the same manner as a member’s lifetime annuity in accordance with any of Methods One to Four described above. Method Five (Flexible Annuity) cannot be used for a short-term annuity.

Dependants’, Nominees’ or Successors’ annuity or short-term annuity

Where this page is being read to establish the requirements regarding the above kinds of annuities, the reference to member in Method Four should be replaced by dependant, nominee or successor as appropriate.

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The open market option

Note: This guidance only applies where the member became entitled to their lifetime annuity before 6 April 2015. Where the member’s entitlement arose on or after 6 April 2015 the open market option is no longer a condition for an annuity to be a lifetime annuity.

Paragraph 3(1)(b) Schedule 28 Finance Act 2004

The member must be given the opportunity to choose the insurance company a lifetime annuity is purchased from. This facility is generally referred to as an open market option.

If the member isn’t given that choice the resulting annuity contract won’t fit within the lifetime annuity definition. (The definition of a lifetime annuity specifically requires that the member must have the option of choosing the contract provider.) This is an explicit requirement of the legislation and helps to ensure flexibility for those providing for their retirement.

If the member fails to select an insurance company to provide the lifetime annuity then the scheme administrator or scheme trustees may select the insurance company. The requirement is that the member must have the opportunity to select the insurance company. If they fail to take that opportunity then the onus falls on to the scheme administrator or scheme trustees.

Even where a money purchase scheme provides the member with the option of a scheme pension, the member must still be given the opportunity of choosing to go down the lifetime annuity route (using the open-market option).

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Payment of a pension commencement lump sum in connection with the purchase of a lifetime annuity contract

Paragraph 1, 2 and 3(3) to (5) Schedule 29 Finance Act 2004

Paragraph 35(2) Schedule 10 Finance Act 2005

Where the contract is purchased from uncrystallised funds, a lump sum paid in connection with the annuity purchase may be paid tax-free if it satisfies the requirements for a pension commencement lump sum. The legislation defines the circumstances where a tax-free lump sum may be paid, and the maximum amount.

To be treated as a pension commencement lump sum, the lump sum payable under the scheme must be linked to the arising entitlement to a lifetime annuity. But this may be under a different arrangement in the same registered pension scheme see PTM063230. It must be paid within an 18-month period beginning 6 months before the purchase of the lifetime annuity contract and ending 12 months after it.

A lump sum payment cannot qualify as a pension commencement lump sum where:

  • The member has already crystallised benefits for lifetime allowance purposes equivalent to 100% of the standard lifetime allowance
  • The lifetime annuity is purchased entirely from ‘disqualifying pension credits’. These are pension credits that, when the member became entitled to them, came from benefits held by the member’s former spouse or former civil partner that were already in payment.
  • The lifetime annuity contract is purchased exclusively from a drawdown pension fund. The member could potentially already have been entitled to a lump sum when those original funds were designated to provide drawdown pension.

The maximum amount that may be paid as a pension commencement lump sum is one third of the annuity purchase price. This is effectively 25% of the total funds coming into payment. This will correspond with the amount that will crystallise for lifetime allowance purposes at that point (through benefit crystallisation event (BCE) 6).

However, where the lump sum payment is made but the member then dies before the annuity has been purchased, the member’s entitlement to the lump sum is deemed to have arisen immediately before their death. The maximum amount in these circumstances is the available portion of the member’s lump sum allowance.

Where a lump sum is paid and part of the funds used to purchase an annuity include a ‘disqualifying pension credit’ or drawdown pension fund the maximum amount will be reduced on a pro-rata basis. The maximum amount will also be reduced on a pro-rata basis if the member exhausts the standard lifetime allowance as the lump sum/lifetime annuity entitlements arise.

See earlier above for the position where a joint-life annuity is purchased.

If protection of benefits existing on 6 April 2006 is an issue, see PTM088300.

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Guaranteeing a lifetime annuity contract

Section 165(1) ‘Pension rule 2’ and paragraph 3(1)(c) and (2) Schedule 28 Finance Act 2004

A lifetime annuity contract may be guaranteed for a set period of time, known as a term certain, of any duration (unless the member’s entitlement to the annuity arose before 6 April 2015 when the term certain cannot exceed ten years). The insurance company guarantees that payments will continue under that contract for a given term even if the member dies before that term has ended. The term runs from the date the member first becomes entitled to that lifetime annuity (the point the contract was purchased).

Guarantees are explained in more detail (though regarding scheme pensions) at PTM062320.

The lifetime annuity contract may provide a guarantee even if earlier pension entitlements under the arrangement were similarly provided with a guarantee, for example under a short-term annuity contract.

The contract may provide that any guarantee entitlement ends on the recipient of the continuing annuity payments:

  • marrying,
  • reaching the age of 18, or
  • ceasing to be in full-time education.

See guidance below for the taxation of those continuing term-certain payments (Taxation of a lifetime annuity contract).

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A lifetime annuity contract and annuity protection

Section 168(1) and paragraph 16 Schedule 29 Finance Act 2004

A lifetime annuity contract may provide a member with annuity protection. This means that the annuity contract guarantees that if the member dies and they have not received a certain total amount of annuity payments by that time, the balance will be paid as a lump sum on the member’s death.

This lump sum is called an annuity protection lump sum death benefit and if paid on or after 6 April 2015 is taxable at 45% (55% before that date).

Whether or not a contract provides this protection will be decided on purchase, and be expressly provided for in the contract. This protection will be costed into the annuity price.

Maximum annuity protection

The maximum protection that can be provided is the capital value of the lifetime annuity benefit that crystallises for lifetime allowance purposes at the time the contract was purchased through benefit crystallisation event (BCE) 4. This will be the purchase price of the annuity. (See PTM088640).

Where a joint-life annuity contract is purchased (providing a residual dependants’ annuity as well as the member’s lifetime annuity) the whole purchase price crystallises through BCE 4. So the maximum protection that may be provided will be the whole cost of the contract.

This maximum applies to the total of such benefits paid under the contract and is not indexed in any way over time.

How maximum protection is defined in the legislation

The maximum annuity protection lump sum death benefit that can be provided through a lifetime annuity contract is expressed in the legislation through the following formula:

  • AC - AP - TPLS
  • AC is the amount crystallised for lifetime allowance purposes through BCE 4 at the point the lifetime annuity contract is purchased or, where the contract was purchased after the member reached age 75, the amount that would have crystallised had there been a BCE 4
  • AP is the amount of annuity payments paid up to the point the member died
  • TPLS is the amount of annuity protection lump sum death benefit (pension protection lump sum death benefit) previously paid under the contract (i.e. this caters for staggered payments under the contract).

Example of where a lifetime annuity contract is provided with annuity protection

A lifetime annuity contract is purchased for David from uncrystallised funds. It provides at outset a level annuity of £7,500 per annum. This costs £100,000.

For lifetime allowance purposes the amount that crystallises through BCE 4 is £100,000 (the purchase cost).

So the maximum annuity protection that can be provided under the contract is £100,000.

If David dies at age 74 and has received a total of £80,000 of lifetime annuity payments from that contract, the maximum annuity protection lump sum that could be paid is £20,000. This will be subject to a tax charge of 45%.

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Taxation of a lifetime annuity contract

Paragraph 6 Schedule 31 Finance Act 2004

Sections 579A to 579D, and section 646B(4) Income Tax (Earnings and Pensions) Act 2003

Any income paid from a lifetime annuity contract to a member is taxable as ‘pension income’ on the recipient through PAYE. The pension payer must deduct income tax under the PAYE rules before paying the pension income to the member.

The taxable pension income for a tax year is the full amount of annuity income that accrues in that year under the terms of the contract irrespective of when any amount is actually paid.

Where the member dies after becoming entitled to a lifetime annuity, and payments continue under the contract because of a guarantee, the recipient of the continued payments is also taxed in exactly the same way as above, unless all of the following points apply:

  • the member died after 2 December 2014
  • the member died before reaching age 75
  • any payments made from the annuity before 6 April 2015 were made to the member
  • if there has been a transfer of the annuity in payment from one insurance company to another, the only payments of the annuity before 6 April 2015 from either the initial contract, or any successive annuity following a transfer, were made to the member.

Where all of the points listed above apply, the guarantee payments are tax-free.

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Transfer of a lifetime annuity from one insurance company to another

Paragraph 3(2B) to (2D) Schedule 28 Finance Act 2004

Paragraph 13(3) Schedule 10 Finance Act 2005

Regulation 6 The Pensions (Transfers of Sums and Assets) Regulations 2006 - SI 2006/499

A lifetime annuity contract represents a contractual liability for an insurance company to pay a pension for life to a member of a registered pension scheme (and potentially an associated dependants’ annuity on their death, where a ‘joint-life’ contract has been purchased).

The onward transfer of that liability to another insurance company is not a ’recognised transfer’ because the sums and assets transferred do not specifically represent the rights of the member.

However, the above-mentioned regulations permit an insurance company to transfer to another insurance company sums or assets relating to their liability under a lifetime annuity contract. The relevant regulation requires the new lifetime annuity to be treated as if it were the original lifetime annuity for certain prescribed purposes of the pensions tax rules (see list below). Otherwise, the registered pension scheme under which sums and assets were used to buy the original lifetime annuity is treated as making an unauthorised member payment. The amount of the unauthorised payment is equal to the total amount of sums and the market value of the assets transferred to the new lifetime annuity provider.

The new lifetime annuity must be treated as if it were the original lifetime annuity for the purposes of:

  • determining whether the member has reached normal minimum pension age for the purposes of pension rule 1
  • determining whether there has been a surrender (or agreement to surrender) of rights to payments under a lifetime annuity
  • determining whether there is entitlement to a pension commencement lump sum (to prevent a further PCLS entitlement arising)
  • determining whether the member has become entitled to a lifetime annuity (to prevent a further BCE 4 occurring)
  • determining the amount of any annuity protection lump sum death benefit.

In all other respects the new lifetime annuity is treated as exactly that so the annuity terms can be reshaped, for example to provide a single annuity where the original lifetime annuity included provision for a spouse who has subsequently predeceased the member or to provide a fresh guarantee for up to 10 years (whether or not the original annuity made such provision).

There is no obligation requiring an insurance company to either make or accept a transfer of a lifetime annuity liability. It is not something the member can instigate without the agreement of the insurance company concerned. There would also need to be agreement between the two insurance companies on the value of the annuity business in question based on an analysis of the policy terms and conditions.

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Benefits that may be provided under a lifetime annuity contract on the death of the annuitant

Sections 165 & 167 Finance Act 2004

Paragraphs 3(1)(c) and (2) and 17 Schedule 28 and paragraph 16 Schedule 29 Finance Act 2004

The only benefits a lifetime annuity contract (as secured from a money purchase arrangement) can provide on the death of the annuitant are as follows:

  • the provision of a further annuity for any dependants or nominees of the member - see PTM072200
  • the continuation of any member’s lifetime annuity for the term of any remaining guarantee period (guarantee guidance is earlier above), and
  • the payment of an annuity protection lump sum death benefit - see PTM073400.

More than one of the above benefits may be provided by a lifetime annuity contract on the death of the member.

Whether or not the above benefits are available on the member’s death will be a question of fact under the terms of the contract. If there is more than one dependant then each may be given a death benefit under the contract.

If a dependant’s or nominee’s annuity entitlement is within certain limits, it may be paid as a trivial commutation lump sum death benefit (see PTM073700 for more details).

Any other benefit provided on the death of the annuitant will not be an authorised member payment and will be taxed as an unauthorised member payment (chargeable on the recipient - see PTM130000).

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An annuity contract purchased and in payment on 5 April 2006

Article 2 of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

A lifetime annuity contract purchased by a pension scheme within the categories listed in paragraph 1(1)(a) to (g) in Schedule 36, Finance Act 2004 before 6 April 2006 and in payment on 5 April 2006 is not a registered pension scheme and so it is not generally within the rules in Part 4 of the Finance Act 2004. This remains the case for so long as the terms of the annuity contract continue unaltered post 5 April 2006. Thus, provided:

  • the terms of the annuity, or of any arrangement or agreement made in connection with that annuity do not permit a payment, the making of which would have given the Board grounds for withdrawing approval of the pension scheme under section 591B of ICTA 1988 if it had been made before 6 April 2006, and
  • the terms of the annuity contract have not been altered on or after 6 April 2006 to allow a payment that would be an unauthorised payment if it had been made by a registered pension scheme.

The annuity contract does not come within the new tax rules. But if the terms of the annuity contract are altered so that they do not meet the above conditions, then Article 2 of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572 will operate to extend the scope of section 161(3), Finance Act 2004, to cover payments made or benefits provided under the contract. This means that any payments or benefits under the annuity are treated as made or provided from sums or assets held for the purposes of a registered pension scheme.

The Article also deals with the position where such annuity contracts were purchased prior to 6 April 2006 by approved pension schemes which were wound-up prior to that date. The Article modifies the wording in section 161(4) Finance Act 2004 in respect of this category of pension scheme so that the payment out of the annuity contract is deemed to be made by a registered pension scheme.