Retirement Annuity Contracts (RAC)—older types of personal pension schemes
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
Retirement Annuity Contracts (RAC)—older types of personal pension schemes

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • Retirement Annuity Contracts (RAC)—older types of personal pension schemes
  • Personal pension schemes—central role in private pensions sector
  • Retirement Annuity Contracts—background and aims
  • Retirement Annuity Contracts—how they compare to personal pension schemes
  • Retirement Annuity Contracts and personal pension schemes—pre A-day contribution limits
  • Pre A-day terms of reference
  • Pre A-day—conditions for RAC approval
  • Pre A-day—retirement ages
  • Retirement Annuity Contracts—effect of A-day

Personal pension schemes—central role in private pensions sector

Personal pension schemes, in their various forms, play a central and important role in the UK private pensions sector today. They were first introduced on 1 July 1988 and offer a considerable degree of flexibility in that they are available to:

  1. employees (with employers being permitted to contribute and claim the tax relief without a tax penalty falling on the employee)

  2. the self-employed (and even to non-workers to an extent)

Retirement Annuity Contracts—background and aims

However, personal pension schemes were preceded by another type of pension scheme—the Retirement Annuity Contract (RAC). Following the introduction of personal pension schemes on 1 July 1988, it is no longer possible to establish new RACs, but RACs established prior to that date can continue in operation and contributions can still be made to them.

RACs were first introduced by the Finance Act 1956 as defined contribution arrangements for individual members. They were subsequently governed by section 226 of the Income and Corporation Taxes Act 1970, and were sometimes known as 'section 226 Policies'.

The aim of RACs was to allow certain individuals the opportunity to save for their retirement in a tax-advantaged manner. RACs were particularly relevant for:

  1. the self-employed

  2. employees whose employers offered no form of employer-sponsored pension provision

  3. employees who, for their own reasons,