Retirement annuity plan


Retirement annuity plan

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.

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 resiudual income".

This tax regime is being abolished under pension simplification introduced on A-day.

ee also

* UK Pension Provision
* Personal pension schemes
* Stakeholder pension schemes
* Pension simplification


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