Tax-Free Lump Sum

The tax-free lump sum at retirement is not as simple as a quarter of the pension fund at retirement. The maximum tax-free lump sum cannot exceed three times the remaining pension at retirement. In some cases, particularly at times with larger annuities*, can be larger than under a new pension contract. The higher the annuity, the higher the tax free lump sum that can be taken from the plan. It can be as much as 35% of the fund or even more for someone approaching 75 in a period of relatively high interest rates. However, for younger ages, e.g. 60+, the tax free lump sum may be less than 25%.

* An annuity is the income purchased with your fund at retirement

Retiring before age 60

The earliest retirement age under a RAC, is age 60, therefore it can be beneficial should you wish to retire before 60. By transferring to a new contract, a personal pension could now be taken from age 50.

High Earners

Current pensions legislation dictates a ceiling on the earnings that qualify for pension contributions. i.e. for the tax year 2004/2005, the earnings cap is £105,600. RACs do not have an earnings cap, and can potentially allow you to contribute larger sums into your pension. See Contribution Limits.

Contribution Limits

Contribution limits differ under these contracts to more recent pension plans and may allow you to contribute more or less dependant on your age and earnings.

Carry Forward

Under a Retirement Annuity Contract you can still utilise unused tax relief from the last 6 tax years. This no longer exists for Stakeholder/Personal Pensions.

Concurrency and Basis Year Election

Under a new Stakeholder/Personal Pension, using Concurrency, you may able to contribute to both a company and Stakeholder/Personal Pension. Basis Year Election allows you to use earnings from within the last five tax years to justify your contributions to a Stakeholder/Personal Pension within this tax year. This is not available to Retirement Annuity Contracts.