Understanding Retirement Annuity Contracts

The world of pensions and pension terminology can be confusing and often leads people to put off organising their pension because they are not really sure what all the official sounding terms mean. If so, we are certain that retirement annuity contracts are prime culprits in the list of daunting pension words. Below we lead you through Retirement Annuity Contracts information.

What Are Retirement Annuity Contracts?

Retirement Annuity Contracts, also known as RACs or Section 226 policies, were replaced by Personal Pension Plans - PPPs - in April 1985 and new Retirement Annuity Contracts have not been available since 30th June 1988. Retirement Annuity Contracts were the precursors for Personal Pension Plans and for those planning their retirement before the arrival of PPPs, Retirement Annuity Contracts were the normal investment vehicle. Retirement Annuity Contracts were mainly taken out by people who were self-employed or who were not offered a company pension. In fact, if you were an employee who was not provided with a company pension or you were self-employed and took out a pension on your own before July 1988 then you will almost certainly have a Retirement Annuity Contract.

What To Do With Your Retirement Annuity Contract

Retirement Annuity Contracts are no longer available as a pension plan option but this doesn't mean that they should be discarded. If you have a Retirement Annuity Contract make sure that you put it in a safe place. Retirement Annuity Contracts contributions qualify for full tax relief and the pension fund will grow free of tax on investment income and capital gains tax. There is also the possibility for substitution to a tax free lump sum at retirement age. Unfortunately employers are not able to pay into Retirement Annuity Contracts but you can still make contributions.

Retirement Annuity Contract Tips

You should hold onto your Retirement Annuity Contracts especially if you are a high earner or you have a good chance of becoming a high earner as they can provide a very valuable retirement planning tool.
You can contribute to both Retirement Annuity Contracts and Personal Pension Plans as long as you are within the Earnings Cap, set at a restricted rate by your PPP. It is advisable to speak to a financial adviser about this.
Always seek professional pensions advice from an independent financial adviser regarding Retirement Annuity Contracts.