|
The Scheme Pension is bought with the retirement fund from a registered pension scheme. Under current rules the annuity is taxed as earned income.
The benefit is defined from outset and is not dependent on the investment performance of any underlying assets.
What is the difference between a lifetime annuity and a scheme pension?
The main differences between scheme pensions and lifetime annuities are the way they are tested against the lifetime allowance and the tax free cash entitlement. The amount tested against the lifetime allowance is 20 times the scheme pension or the purchase price of an annuity.
For annuitants with large retirement funds who are close to their personal lifetime allowance this may mean they would exceed their lifetime allowance with a lifetime annuity but not with a scheme pension.
For money purchase schemes, under the “open market option” a scheme pension may only be paid if the member had the opportunity to select a lifetime annuity with the insurer of their choice instead.
Defined benefit schemes can only offer scheme pensions.
Acceptable Sources of funds
OMOs
Defined Benefit
|
Yes
|
Defined Contribution
|
Yes
|
Transfers
Defined Benefit
|
Yes
|
Defined Contribution
|
Yes
|
Protected rights and Guaranteed Minimum Benefit (GMP) benefits are acceptable
Allowable ages
|
|
First Annuitant
|
Second annuitant
|
Minimum age
|
55 attained
|
35 attained
|
Maximum age OMO
|
99 years 11 months
|
99 years 11 months
|
Maximum age Transfers
|
75
|
99 years 11 months
|
Premium levels
Minimum premium
|
£10,000
|
Maximum premium
|
£2,500,000 (total)
|
Payment options
|
|
|
|
Payment frequency
|
Monthly / Quarterly / Half Yearly / Yearly
Paid in advance or arrears (with or without proportion)
|
Payment method
|
BACS
|
Escalation options
|
Level to 5% p.a.
|
RPI
|
LPI
|
Death benefits
Second annuitant benefits
|
Normally 0 to 100% of the members pension
Payable with or without overlap (with any guarantee period)
Named dependant and any spouse basis allowable.
|
Guarantee periods
|
0 to 10 years either in whole years or monthly steps if required
Paid as continuing income
|
Annuity Protection
(money purchase schemes only)
|
Between 0.1 – 100% of annuity purchase price (or 20 times the initial income if lower) less gross income paid or to be paid under any guarantee.
Single life annuity – is paid on the death of the annuitant before their 75th birthday
Joint life annuity – paid on the death of the last to die providing the annuitant died before their 75th birthday.
|
Pension Protection Lump Sum
(defined benefit schemes only)
|
This benefit is payable only if the annuitant dies before their 75th birthday.
A lump sum is payable equal to the lesser of the initial yearly income multiplied by 20, less the total income paid up to the date of death of the pensioner or the value of the value of the remaining payments shown within the guarantee period.
The lump sum payment is taxed at 55%.
Payments can be on a discounted / undiscounted basis and have the option to take future fixed increases into account.
No benefit is payable in respect of any Protected Rights.
|
Defined Benefit Lump Sum
(defined benefit schemes only)
|
This benefit is normally only taken when the policy is issued in the name of the ceding scheme.
This benefit is payable only if the annuitant dies before their 75th birthday.
A lump sum is payable equal to the value of the value of the remaining payments shown within the guarantee period.
The benefit is not subject to the same 55% tax as the annuity protection or pension protection lump sum benefits and is not subject to testing against the lifetime allowance.
Payments can be on a discounted / undiscounted basis and have the option to take future fixed increases into account
|
Taxation
Income
|
Income payments are taxed under the PAYE (Pay as you earn) system.
|
Annuity Protection / Pension Protection Lump Sum / Defined Benefit Lump Sum /
|
Payments (not Defined Benefit Lump Sum) are subject to deduction of 55% at source. Normally payments fall outside of the annuitant’s estate for IHT purposes.
| | 
