Retirement Annuity Contract Tax Free Cash Calculator.
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Retirement Annuity Contracts are the predecessors of personal pension plans. No new RACs could be started after 30 June 1988, although existing contracts continue to accept additional premiums. From 06 April 2006, they fall under the new 'simplified' pension legislation.
Although similar in many ways to personal pensions, there were also some differences, prior to 06/04/2006, such as:
- They were not subject to the earnings cap (although the maximum age-related percentage of earnings that can be paid to a RAC was lower than the equivalent percentages for Personal Pensions)
- The carry forward / carry back rules (which allow unused reliefs from previous tax-years to be swept up) were the same as those applied to Personal Pensions before 2001/2
- To be eligible to make a contribution, an individual had to be in receipt of net relevant earnings (the £3,600 rule did not apply)
- Benefits could only be taken between ages 60 - 75 (under a PP, benefits can be taken between ages 50 - 75)
There were other subtle differences, but the purpose of this programme is to calculate the tax-free lump sum could have been taken at maturity from a RAC.
Under a Personal Pension, the maximum tax-free lump sum that can be taken at maturity is 25% of the fund value. This is a relatively straightfoward calculation.
Previously, the maximum tax-free lump sum which can be taken from a RAC was three times the remaining annuity. To work out this figure, you needed to calculate the remaining pension based on the most advantageous annuity rate available (i.e. single life, without guarantee, no escalation, in arrears - it could be calculated on a Guaranteed Annuity Rate or Impaired Life rate if these were available).
Under the new pension legislation, the rules applicable to Retirement Annuities are now the same as those applicable to Personal Pension plans. Therefore, there is not a huge requirement for such a calculator anymore, as the tax-free cash calculation is a straight 25% of the fund value. However, this calculator will be maintained for some time for research purposes, in order to compare the tax-free lump sum that COULD have been taken against what can be taken now - though on the whole, the 25% rule is likely to be of benefit to most RAC policyholders.
For more details on the new pension legislation, see the page on pension simplification.