RPSM09101080 - Technical Pages: Member benefits: A secured pension: Overview: A deferred annuity contract in existence on 5 April 2006

A deferred annuity contract/section 32 policy in existence on 5 April 2006

Where an entitlement under a retirement benefit scheme

• was secured before 6 April 2006 through the purchase of a deferred annuity contract (or what was widely described as a section 32 contract) with an insurance company, and
• benefits had not come into payment under that contract by that date,

then that contract will automatically become a registered pension scheme on 6 April 2006 by virtue of paragraph 1(1)(d), Schedule 36 FA 2004.

This also applies to such contracts secured under a relevant statutory scheme as defined by s611A ICTA 1988 (equivalent to what is from 6 April 2006 a public service pension scheme) and certain old code funds approved under ICTA 1970 before 6 April 1980.

If benefits have already come into payment under an annuity contract before 6 April 2006 that contract will not automatically become a registered pension scheme on that date. Such a contract will only become a registered pension scheme if an application to register the contract is made to HMRC, and it meets the conditions for registration.

Where a deferred annuity contract does become a registered pension scheme on or after 6 April 2006 the pension benefits provided by that contract must fit within the authorised pension benefit rules. A pension is an authorised pension benefit if it comes within the definition of

• a scheme pension,
• a lifetime annuity,
• an unsecured pension, or
• an alternatively secured pension.

Which of those authorised member payments the pension provided under the contract ultimately fits into will depend upon the form of the entitlement arising under that contract (as based on the terms of that contract). And there is no objection to the terms of that contract being re-written post 5 April 2006 to fit into the new ‘authorised member payment’ rules.

If the pension entitlement arising does not fit into any of the above four authorised pension categories, as defined in the legislation, the payments made will represent unauthorised member payments.

RPSM09101840 explains the taxation position for ongoing pensions paid from pre-6 April 2006 contracts that do not become a registered pension scheme on or after 6 April 2006 because benefits are already in payment on 6 April 2006.

The same rules apply equally to the provision of benefits under such a contract to a dependant of a contract holder. The benefits provided by the contract must fit within the authorised pension death benefit rules if the payments are not to be treated as unauthorised member payments.

RPSM09101090 covers how a deferred annuity purchased on or after 6 April 2006 is treated.