RPSM09101840 - Technical Pages: Member benefits: A secured pension: Lifetime annuity: Annuity in payment on 5 April 2006

An annuity contract purchased and in payment on 5 April 2006

[Article 2 of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572]

A lifetime annuity contract purchased by a pension scheme within the categories listed in paragraph 1(1)(a) to (g) in Schedule 36, Finance Act 2004 before 6 April 2006 and in payment on 5 April 2006 is not a registered pension scheme and so it is not generally within the rules in Part 4 of the Finance Act 2004. This remains the case for so long as the terms of the annuity contract continue unaltered post 5 April 2006. Thus, provided

• the terms of the annuity, or of any arrangement or agreement made in connection with that annuity do not permit a payment, the making of which would have given the Board grounds for withdrawing approval of the pension scheme under section 591B of ICTA 1988 if it had been made before 6 April 2006,
• the terms of the annuity contract have not been altered on or after 6 April 2006 to allow a payment that would be an unauthorised payment if it had been made by a registered pension scheme,

the annuity contract will not come within the new tax rules. But if the terms of the annuity contract are altered so that they do not meet the above conditions, then Article 2 of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (SI 2006/572) will operate to extend the scope of section 161(3), Finance Act 2004, to cover payments made or benefits provided under the contract.

The Article also deals with the position where these types of annuity contracts were purchased prior to 6 April 2006 by approved pension schemes which were wound-up prior to that date. The Article modifies the wording in section 161(4) in respect of this category of pension scheme so that the payment out of the annuity contract is deemed to be made by a registered pension scheme.