From 4 January 1988 personal pension schemes came into force and
no new retirement annuities (
IHTM17023) were available from that
date. Personal pension policies are similar to retirement
annuities.
A personal pension scheme is effected between an individual
and a pension provider (normally an insurance company but it can
also be a friendly society, bank, building society or unit trust
company). Under the terms of the scheme the individual pays the
contributions (which may be regular or single) to the provider
which invests the money in order to build up a fund on the
individual’s behalf. An individual’s employer may also
make contributions to that individual’s personal pension
scheme.
The main purpose of the personal pension scheme is to provide
the individual with an annuity (which acts as a pension) when they
retire at any time between age 50 and 75.
However the annuity can be taken earlier if the individual is
in poor health (
IHTM17093) or is in an occupation in
which it is customary to retire at an earlier age (such as,
football players). Furthermore there is no requirement that the
individual should have ceased working at the time the annuity
starts.
The annuity must be payable by an authorised insurance
company. This means that if the pension provider is another body
(such as a bank) the accumulated fund must be transferred to an
insurance company to provide the benefits when the time comes to
pay them. The individual is entitled to choose the insurance
company. Even if the pension provider is an insurance company the
individual has the right to have the funds transferred to another
insurance company. Since the amount of the annuity payable for a
given fund value will vary from one insurance company to another
the right to choose which company will actually pay it is very
important.
When payment of the annuity starts the individual is given a
policy contract which sets out the terms of payment. The policy
provisions and possibly also the policy schedule will include a
clear reference to ICTA88/S634 which is the relevant statutory
provision governing payment of the benefits.
A Self Invested Pension Plan (SIPP) is a type of personal
pension where the policyholder has elected to direct the
investments of the scheme fund using non-insurance company assets.
As a personal pension it differs from a SSAS (
IHTM17021) in that there are no maximum
benefits and they do not require individual approval. The
arrangements are approved by HMRC before they can be marketed. It
is then the responsibility of the plan administrator in whose name
the assets are held to ensure that the plan complies with the
regulations.
