These personal plans were the predecessor of the Personal Pension Plan. No new Retirement Annuity policies were allowed to be taken out after 30 June 1988. However, if you have one now that was taken out before this date you could still be eligible to contribute to it provided some general rules are still met.
The basic rules on Retirement Annuity policies regarding complex tax free cash calculations were "Three times the residual annuity" have now been replaced to bring retirement annuity policies into line will all other pension schemes.
Simplified Rules after 6th April 2006:
Who can have a retirement annuity plan?
You cannot start a new retirement annuity plan. Only those people who had a policy in force before 30th June 1988 will be able to pay into one. Under Pension Simplication rules you are now eligible to continue to contribute to such a plan if you are a UK employer or a UK Relevant Individual and receive tax relief on contributions made. Even if you do not live in the UK you may still be able to pay into a UK pension plan.
What can I pay into a retirement annuity plan?
You are allowed to contribute premiums to as many retirement annuity plans or indeed any other pension plans as you want up to the Annual Allowance. The Annual Allowance i.e. the yearly maximum amount you and your employer can pay into all pension plans started in 2006/07 at £200,000pa but then reduced to £50,000pa and now £40,000pa from April 2014. This still means you may be able to pay huge sums into your pension without any complex calculations.
How much should I save in my retirement annuity plan?
This is a personal choice, based on what you can afford. We have produced a number of pension calculators to help you decide what you should pay in.
What happens to my money?
Your pension money is invested normally in collective funds with other pension savers. Generally, you buy shares known as 'units' in the pension fund. Pension funds invest in a wide range of areas such as cash, property, fixed interest stock, bonds, shares, overseas shares and much more. Some older types of retirement annuity policies have been set up on a 'conventional with profits' basis. 'Conventional' plans work on the basis of a guaranteed sum assured to be paid at retirement date. Added to this, assuming the investment funds have performed well are usually annual (also known as reversionary bonuses) and terminal bonuses when the plan stops.
How does my retirement annuity plan grow?
If the value of an asset owned by the pension fund goes up in value e.g. a Shopping centre owned by a pension property fund, then the 'unit price' value of your 'shares' or 'units' in that fund goes up. For conventional plans, as mentioned above, bonuses are added. When can I retire from a retirement annuity plan? You can retire from this type of scheme after the age of 50 until April 2010 and age 55 after April 2010.
What happens to my retirement annuity plan at retirement?
At retirement you are now allowed to receive a tax free lump sum of 25% of the fund value and the balance can then be used to purchase a retirement income. Think of it like investing money in a bank account, you cannot have the money back and you receive income on the money you invested. There are three types of income style at the chosen retirement date; some are more risky than others: Secured Income (an annuity) or Capped and Flexible Drawdown where you can draw lump sums and regular income from the fund.
What is the maximum pension I can receive when I retire?
There is no maximum pension you can receive. Your pension income depends upon the size of the fund that you have built up and then what income/interest rate that fund can then pay out. If your fund grows to a huge fund there will be tax penalties if it is above the Lifetime Allowance. The Lifetime Allowance started in 2006/07 at £1.5m and increased most years so it should not affect the majority of us until recently where it is gradually reducing to £1.2m. If you have selected Capped Drawdown you will have a choice of income levels from £0 up to 120% of the Government's Standard Annuity Level for your age or Flexible Drawdown if you have a higher pension income.
What happens if I die?
If you die before you have retired i.e not taken income or tax free cash from your pension your heirs will normally receive the whole pension fund as a lump sum. If you die and you are already receiving benefits, cash or pension or both, if it is an annuity income your heirs may or may not be able to receive a balance of the fund paid depending upon the type of annuity you invested in. If you die and you are receiving benefits under Capped Drawdown or Flexible Drawdown your heirs may receive some or all or all of the fund subject to tax penalties and/or inheritance tax.
Can I have Life Insurance Cover?
It is unlikely that a retirement annuity plan provider will adjust their systems to offer pension life cover even though they are legally allowed to do so. Most Pension plan providers can offer you Personal Pension Plan life cover. This means that the premiums you pay for life insurance receive tax relief on the premiums. If you die and your heirs receive Pension Life Cover pay outs plus the value of the pension fund and it exceeds the Lifetime Allowance there may be a tax charge.
Old Rules Before 6 April 2006:
You used to be eligible to contribute to such a retirement annuity if you were an employee, director or self employed person living in the United Kingdom and were not members of a Company Occupational Pension Scheme.
You were allowed to contribute to a Retirement Annuity plan if you had relevant earnings. Relevant earnings were things like taxable pay, maternity pay, statutory sick pay, taxable benefits in kind such as a company car etc.
You were not allowed to take out a Retirement Annuity plan if you were a member of an Occupational Pension Scheme as your earnings could be linked to that pension scheme and therefore were not 'relevant'.
Please note that some people were able to be both members of an Occupational Scheme and a Retirement Annuity - e.g. if you had two employments. You should contact us for guidance on this.
The maximum you were able to contribute was linked to a % of your earnings and your age at the start of the start of the tax year 6 April.
Age 35 or less a maximum of 17.5%
Age 36 - 45 a maximum of 17.5%
Age 46 - 50 a maximum of 17.5%
Age 51 - 55 a maximum of 20%
Age 56 - 60 a maximum of 22.5%
Age 61 - 74 a maximum of 27.5%
For example, if your date of birth is 26/07/66. Then your age at the start of this tax year 03/04 was 36 years. Therefore, you were able to contribute up to 17.5% of your earnings to a Retirement Annuity plan.
THERE WAS NO LIMIT ON THE SALARY THAT CAN BE USED: THIS DIFFERED GREATLY TO A PERSONAL PENSION AND STAKEHOLDER PLAN IN THAT THEY HAD CAPS ON THE SALARY FIGURE .
If you contributed to both a personal pension plan and a retirement annuity policy in the same tax year you were then still subject to the Earnings cap. The maximum % contribution was the higher of the relevant % figures in the above table or that of personal pensions.
If in the following tax year you do not contribute to a personal pension plan, you will no longer be capped on the earnings figure that you are allowed to use.
Carry Forward of Unused Pension Tax Relief
You used to be able to use up previous years unused tax relief if you paid into a Retirement Annuity Plan. Visit the Unused Relief Section.
You still receive tax relief on contributions that you make to the plan. See Tax Benefits.
You used to be able to retire between the ages of 50 and 75. Note if you have a special occupation such as a sports person you were able to retire earlier say from aged 35.
Some other additional benefits
You are not able to take out Life Assurance Cover as part of your retirement annuity contract although you may have also considered a personal pension plan as it used to be able obtain things like tax relief on the life insurance contributions. This is not the case now.
Get help and advice from the UK leading pension experts and get your old annuity policies up to date.