RPSM09102040 - Technical Pages: Member benefits: An unsecured pension: Overview: Short term annuity

This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.

If the member became entitled to their pension on or after 6 April 2011 then see the guidance at RPSM09103500.

A short-term annuity contract

A member may choose to secure part (or all) of their unsecured pension through the purchase of a short-term annuity contract from an insurance company.

Unlike with income withdrawal the unsecured pension secured through that contract will be paid direct by an insurance company (rather than the scheme administrator), as dictated by the terms of an annuity contract. The unsecured pension fund held in the arrangement will be reduced by the purchase price when the contract is purchased.

The term of that annuity contract cannot be more than five years, and the annual amount payable by the contract is bound by the same rules as income withdrawal payments paid direct from the scheme. Also the pension payable from the annuity can reduce only in a manner prescribed by HMRC regulations as described in RPSM09101730 to RPSM09101750 but reading any reference to lifetime annuity as reading short-term annuity contract except where specifically mentioned in the text.

The term of that annuity must not extend beyond the member’s 75^th birthday.

The short-term annuity contract option gives people the opportunity to reassess their pension needs periodically and to choose alternative types of annuities, so long as they secure an income for life by age 75.