Retirement Annuities / Annuity aka 226 Contracts - UK Personal Finance on Moneyweb
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Retirement Annuities/Annuity contracts
Retirement Annuities are also known as Section 226 policies. These were the precursors for Personal Pension Plans and were the usual investment vehicle for those planning their retirement before July 1988. They are no longer available as new investments, but if you have already got one, keep it. It could be very useful, especially if you are, or become, a high earner.
If you were self employed or an employee whose employer did not provide a pension then if you took out a pension on your own account before July 1988 then it will almost certainly be a Retirement Annuity contract.
Key Features
All premiums are paid gross, and you get the tax relief through your coding.
If you have not made maximum contributions in past years you can catch up, with very large premiums, by going back up to 6 years and using old allowances. Ask your IFA about Carry Back and Carry Forward.
If you earn over the Earnings Cap then this does not affect contributions
to Retirement Annuities. I.e. if you earn £250,000 you can make RA contributions
based on your entire income, but ONLY as long as you do not make any PPP contributions
in that year. If you make a PPP contribution then the PPP limit will be the
limit for combined PPP and RA contributions.The lesson here is to ensure that
if you have an RA you keep it.
Employers cannot contribute. You will have to negotiate a pay rise and funnel that to your RA yourself.
You can contribute to both PPP and RA as long as you are within the Earnings Cap. The RA contribution will be limited as per the table below, and any excess must go to the PPP. Of course you can slice this any way you like, varying from year to year if the contracts permit.
Cash is calculated as a function of annuity rates, and is three times the annuity. This is often more than the 25% of fund under a Personal Pension Plan
There is a limit of £150,000 for cash for contracts begun after 17 March 1987, but segmentation ( the dividing of the contract into many sections) render this irrelevent in most cases.
You can start to take benefits from ages 60-75.
Use the Pension Audit to see how your current planning stacks up, and the Javascript below to see how much you can contribute.
*Net Relevent Earnings are broadly speaking your income from work. For employees it can include the value of company cars and fringe benefits, overtime etc. It excludes income from investments.
Quick Maximum Pension Premium Calculator
Use this quick little JavaScript* to see how much you can contribute to your policy, and the Net Premium as determined by your tax rate.
