Retirement Annuity Contract

If you contributed into a private pension scheme before 30 June 1988 then in all probability it was something called a retirement annuity contract (RAC). After that date the more modern Personal Pension Plan (PPP) that we know so well today largely superseded them and it was no longer possible to open a new retirement annuity contract. After the 30th June 1988 if you held a retirement annuity contract you could still have contributed into it and maintained some of its provisions, which at the time may have been seen as offering advantages over the PPP’s equivalents. This could have continued up to 2006 at which time changes in legislation were introduced to rationalise the pension scheme positions. This was necessary because for experts and the public alike, the position whereby RACs, PPPs and other schemes were all running side-by-side had become hopelessly confusing and over-complicated.

As stated above, originally the retirement annuity contract had some advantages over the newer PPPs. They did offer the possibility to make higher earnings qualifying contributions and to take a higher percentage tax-free lump sum than is the case with the PPP. They could also pay out gross and without tax deductions. These advantages disappeared in 2006 when their benefits were pulled into line with the benefits and operation of the PPPs. It's possible to at least partly offset any nostalgia for those old retirement annuity contract benefits by remembering that the retirement annuity contract did not provide for retirement benefits to be paid prior the age of 60 rather than the PPP’s 50 (pre 2010) or 55 (post 2010). Although this may be interesting reading, to some extent this is now history and largely academic for the majority of pension investors. The position today for private pensions and RACs is clear if inevitably rather complicated – and the good news is that if you hold a retirement annuity contract you have no obvious cause for concern.

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Retirement Annuity Contract: The Facts

• You may be able to continue to make certain payments into a retirement annuity contract including possibly for previous years but this is a complex area and expert financial advice is required to understand specifically the options and pros/cons that would apply in your case;
• Since 2006 the operations of retirement annuity contracts have been brought into line with the PPP;
• There is now little material difference between the administration and use of a retirement annuity contract and PPP;
• If you hold a pre-1988 retirement annuity contract it may be difficult to discuss this in isolation of an understanding of your total pension savings position;
• If you received advice originally to continue to contribute into a retirement annuity contract, it may be a good idea to revisit this. Legislation and practice have changed in this area (notably in 2006) and advice you received some years ago may no longer still make sense in terms of being the best option for you;
• Our pensions are one of the most important areas of financial decisions that we will ever make. The law and financial practice surrounding pensions investment is staggeringly complicated and includes numerous taxation and return on investment issues. It may not be a good idea to make changes or decisions in terms of your pension planning without the advice and guidance of a very experienced expert or financial organisation to help you irrespective of whether or not you have a retirement annuity contract.