PSI25.1.1 - Flexibility in Pension Provision – Introduction - General

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

On 30 June 1999, new provisions were introduced to make tax approved money purchase schemes and buy-out (section 32) contracts more flexible. Originally, when a member decided to draw his/her benefits he or she had to purchase an annuity immediately (but see PSI25.1.6 in relation to SSAS). This left people exposed to short term fluctuations in annuity rates; members who retired when annuity rates were low had smaller annuities than they would have obtained from the same amount of funds had they been able to postpone the purchase until annuity rates were more favourable.

The new provisions allow:

• the purchase of an annuity to be deferred up to age 75 and in the meantime the payment of a pension from the scheme resources by income drawdown
• the payment of AVC (& FSAVC) benefits at any time between the age of 50 and the age of 75 (or earlier if a member leaves employment due to incapacity) whether or not the member has retired or is drawing the main retirement benefits from his/her employer's scheme.

The first provision was intended to create a level playing field with personal pension schemes. It gives members greater choice over the timing of annuity purchase and enables them to continue to benefit from the further investment growth of their funds. PSI Part 25 Section 2 deals with the conditions governing pension under annuity deferral/income drawdown.

The introduction of the second provision was again aimed to give people more control over their retirement income. Some members may wish to take AVC benefit early, for example, on moving from full-time to part-time work. Other members might prefer to defer the AVC benefits beyond retirement age to boost their income when they are older. PSI Part 25 Section 3 deals with the flexibility provisions for additional voluntary contribution benefits.