Retirement annuity plan
Encyclopedia
A retirement annuity plan (RAP) is a UK
pension plan designed to build a lump sum for retirement. Part of the lump sum must be used to buy an annuity and part can be taken a tax free lump sum.
The plans were introduced under section 226 of the Income and Corporation Taxes Act 1970
and are often referred to as section 226 contracts. However they are currently legislated under section 620 of the Income and Corporation Taxes Act 1988
and are therefore also known as section 620 contracts.
This tax regime is being abolished under pension simplification
introduced on A-day.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
pension plan designed to build a lump sum for retirement. Part of the lump sum must be used to buy an annuity and part can be taken a tax free lump sum.
The plans were introduced under section 226 of the Income and Corporation Taxes Act 1970
Income and Corporation Taxes Act 1970
The Income and Corporation Taxes Act 1970 was an Act of Parliament passed by the Parliament of the United Kingdom which was repealed in 1992.-Section 226 plans:...
and are often referred to as section 226 contracts. However they are currently legislated under section 620 of the Income and Corporation Taxes Act 1988
Income and Corporation Taxes Act 1988
The Income and Corporation Taxes Act 1988, also known as ICTA, was the foremost United Kingdom Act of Parliament concerned with taxation until the Income Tax Act 2007 and the Corporation Tax Act 2010. ICTA was enacted in order to consolidate a number of earlier legislative provisions covering...
and are therefore also known as section 620 contracts.
Tax treatment
Contributions receive basic tax relief claimed at source (although this was only introduced in 2001). The income and gains in the plan are free from tax (with the exception of the non-reclaimable 10% tax credit). At maturity the tax free cash can be taken. The tax free cash lump sum is calculated with reference to the initial annual income. The formula is often described as: the tax free cash is equal to three times the residual income.This tax regime is being abolished under pension simplification
Pension simplification
Pension tax simplification, often simply referred to as "pension simplification" and taking effect from A-day in 6 April 2006 was a policy announced in 2004 by the Labour government to rationalise the British tax system as applied to pension schemes...
introduced on A-day.
See also
- Pensions in the United Kingdom
- Personal pension schemePersonal pension schemeA Personal Pension Scheme , sometimes called a Personal Pension Plan , is a UK tax-privileged individual investment vehicle, with the primary purpose of building a capital sum to provide retirement benefits, although it may also be used to provide death benefits.These plans first became available...
s - Stakeholder pension schemeStakeholder pension schemeStakeholder pension schemes were introduced in the UK on the 6th April in 2001 to encourage more long-term saving for retirement, particularly among those on low to moderate earnings. They are required to meet a number of conditions set out in legislation, including a cap on charges, low minimum...
s - Pension simplificationPension simplificationPension tax simplification, often simply referred to as "pension simplification" and taking effect from A-day in 6 April 2006 was a policy announced in 2004 by the Labour government to rationalise the British tax system as applied to pension schemes...