[Para 3(1)(d), Sch 28][Para 13(2) and (4), Sch 10, FA 2005]
[The Registered Pension Schemes (Prescribed Manner of Determining
Amount of Annuities) Regulations 2006 (SI 2006/568)]
Generous tax reliefs are given to encourage pensions saving,
so it is important that the tax rules ensure that the pension funds
are used for the intended purpose of funding pensions for the life
of the member. A
lifetime annuity contract provides a means of
turning pension capital into an income that lasts for all of a
pensioner’s retirement. To ensure that this continues to be
the case, there are also some safeguards within the rules to ensure
that a lifetime annuity contract provides a stable and predictable
source of income.
Therefore, the legislation requires that a lifetime annuity
contract must provide for an income that is not only payable for
the member’s lifetime, but provides an income that represents
an even spread over that lifetime. The legislation only allows a
lifetime annuity contract to provide for an income that decreases
over time in very specific and controlled circumstances. These
circumstances are laid down by regulations (see
RPSM09101750 for more details).
Any annuity in which the amount payable either stays level or
increases will come within the definition of a lifetime annuity.
The amount of income provided by the contract may only be varied by
reference to other factors, where that factor is specifically
provided for in regulations. See
RPSM09101750 for further details.
If the contract provides an income that decreases in
circumstances other than provided in the regulations then the
contract is not within the lifetime annuity definition. The
purchase of that contract will represent an
unauthorised member payment (unless it is being
used to secure a
scheme pension liability).
An exception to this rule is that a lifetime annuity can be
reduced to give effect to a
pension sharing order (see
RPSM09101740).
| Glossary ( RPSM20000000) |
