Annuities for pension lawyers
Annuities for pension lawyers

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Annuities for pension lawyers
  • What is an annuity?
  • Tax treatment of annuity payments
  • Types of annuities
  • How is an annuity priced?
  • Information requirements: the open market option (OMO) and open market options statement
  • Conditions for a lifetime annuity to be an authorised payment
  • Conditions for a short-term annuity to be an authorised payment
  • Interaction with the lifetime allowance
  • Ability to take a pension commencement lump sum
  • more

Before 6 April 2015, members entitled to money purchase or defined contribution (DC) benefits had limited retirement options, namely:

  1. getting a scheme pension

  2. drawdown, or

  3. buying a lifetime annuity

The purchase of a lifetime annuity was the most common retirement option, especially as the other two options were only available:

  1. if the member's scheme permitted them (a rare thing in practice), and

  2. in the case of drawdown, if the member satisfied certain conditions

On 6 April 2015, pension flexibilities were introduced to widen the retirement options available to DC members and members with other 'flexible benefits' (eg members with cash balance benefits). Not only did drawdown become more widely available, but it is also possible for members with flexible benefits to take their pensions pot as one or more lump sums, known as 'uncrystallised pension fund lump sums'. For further information, see Practice Notes: DC pension flexibilities from 6 April 2015—what is involved? and Uncrystallised funds pension lump sums (UFPLSs).

This Practice Note considers annuities, their regulatory and legal regime, as well as the impact the pension flexibilities introduced on 6 April 2015.

What is an annuity?

An annuity is a type of insurance contract which, in return for the payment of capital, entitles the annuitant to a guaranteed income until death (although some annuities may be set for a fixed period