RPSM05101190 - Technical Pages: Contributions and tax relief: Member contributions: Entitlement to tax relief: Insurance contracts for ill health payments

Transitional provisions: Insurance contracts for ill health payments (‘waiver of contribution’)

Before 6 April 2006 some personal pension schemes and retirement annuity contracts included insurance whereby if the member was suffering from ill health and is not earning, an amount representing the normal contributions which would otherwise have been made is credited to the member’s fund.

If such an insurance contract was taken out before 6 April 2006 under

• a personal pension scheme approved before 6 April 2001, or
• a retirement annuity contract approved under sections 620, 621 or 622(3) ICTA 1988

any payment under the scheme from the insurance will not be an unauthorised member payment. The payment will not be a relievable pension contribution, so no claim to tax relief will be available.

There may be retirement annuity contracts and pre 6 April 2001 personal pensions where the contract terms are such that the individual has the option to exercise ‘waiver of contribution’ insurance. Such an option is sufficient to constitute a protected ill-health insurance contract if the option is subsequently exercised, whether before, on or after 6 April 2006.