RPSM09102230 - Technical Pages: Member benefits: An unsecured pension: Short term annuities: Definition

This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. See RPSM09103500 if pension entitlement arose on or after 6 April 2011.

Definition of a short term annuity contract

A short-term annuity contract must

• be purchased from an insurance company, which the member had the opportunity to select,
• be purchased only from funds held in an unsecured pension fund,
• be paid at least once a year, either in advance or in arrears,
• only allow the amount paid each year to either stay level, increase or go down in circumstances prescribed by HMRC regulations. The circumstances in which an annuity payment may go down are essentially the same as for a lifetime annuity - see RPSM09101730 to RPSM09101750 for details,
• not allow the direct or indirect payment of capital payments triggered by the member’s death (except through a term-certain guarantee - see RPSM09102240), nor pay an unsecured pension after the death of the member,
• be payable for a term of no more than five years and, if purchased before 22 June 2010, must end before the member reaches the age of 75. Where the short-term annuity is purchased on or after 22 June 2010 it can continue after the member’s 75^th birthday, but the term of the annuity still cannot be longer than five years.

As with a lifetime annuity, it is possible to transfer a short-term annuity to another insurance company (see RPSM09102150).