Retirement Annuity Contracts

Prior to the 1st July 1988 a product called a retirement annuity contract was available, designed as a way of helping you provide for your retirement years. After that date the personal pension plan (PPP) replaced retirement annuity contracts and the revised legislation meant that new retirement annuity contracts could no longer be opened up. The differences between the RAC and PPP were not huge but they were significant. The old retirement annuity contracts could pay out gross amounts pre-tax whereas modern PPPs have tax deducted at source as per PAYE. As the tax-free lump sum calculation method was different, it was also possible to take a higher percentage at the outset than the 25% available through the PPPs. Under the appropriate circumstances you could also have chosen to make payment contributions into a retirement annuity contract under a higher qualified earnings cap than is the case with a PPP.

On the downside, the old retirement annuity contracts usually did not permit retirement until the age of 60. To make matters rather confusing, after 1988 although it was no longer possible to take out a retirement annuity contract it was possible to maintain existing such contracts and keep paying into them – there were in fact advantages in so doing. The situation whereby there were several major schemes operating in parallel managed to confuse not only the public but also experienced financial advisors and HM Revenue and Customs! In 2006 the law was changed and existing pension schemes were rationalised. The existing pre-1988 retirement annuity contracts have now been brought more-or-less into line with the existing PPP schemes in terms of operation and benefits. There is now little effective difference between the two. Retirement annuity contracts could be a part of your future pension and therefore prosperity. You should always make sure you understand your pension provisions in total and be prepared to take expert advice to protect your interests.

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Retirement Annuity Contracts Tips

• Your pension/annuity will probably be critically important to your financial wellbeing after retirement. Unless you have an expert understanding of the entire area, it could be unwise to make investment decisions relating to it unless you have taken financial advice in advance;
• If you hold a pre-1988 retirement annuity contract it probably will not give you any significant advantage (or disadvantage) over the modern PPPs;
• Apart from a few very specialist cases, the payments will be taxed at source and both the tax-free lump sum and retirement options will be as per the personal pension plan;
• Periodic pension checkpoints are always a good idea. Dig out your retirement annuity contract details and make sure they're to hand - it may be useful to do this for any other pension plans you have contributed to over time whether private or occupational. If nothing else this could refresh your memory;
• Contact your contract or fund administrators to check that their records are up-to-date. They can become out-of-date or inaccurate with alarming ease!
• Ask for advice from a specialist financial company as to what options you have for your retirement annuity contract and other pensions in preparation for retirement in general. A pensions 'health check' looking at the totality of your position may not be a bad idea.