Deferred annuity meaning

An annuity is a periodic sum paid out of personal estate. See Savery v Dyer (1752) Amb 139 (not reported by LexisNexis®). It is personalty (Parsons v Parsons). An annuity is a legacy, being a bequest of whatever capital is needed to produce the annuity amount. They can be useful where a drip-feed approach is desired. In essence, they are legacies settled by instalments over a beneficiary’s lifetime. The Will ought to specify whether: executors may buy the annuity using estate capital; a sum from income is reserved to finance the purchase; both capital and income are earmarked to fund the purchase; the annuity is acquired during the executors’ lifetimes (if funds permit), with any deferred annuity vesting in trustees on death; Different routes carry different tax consequences, for capital and income. Annuities may arise: inter vivos by deed; by Will; by or under statutory powers Classification of annuities by Will An...

What is a cash balance scheme? Put simply, a cash balance pension scheme is an arrangement where a member accumulates a guaranteed pot of money during their pensionable service, which is then used to provide retirement benefits. When the member retires, this pot is generally applied to buy an annuity (or to deliver other retirement benefits) on whatever terms can be obtained in the market at that time. This kind of scheme blends features of a defined benefit (DB) arrangement with aspects of a defined contribution (DC) arrangement. That mix is important because it influences how the risks inherent in any pension arrangement are shared between the member and the sponsoring employer, as explored in this Note. Benefit structures Cash balance schemes come in different forms, but they broadly fall into two categories depending on how the retirement cash sum is calculated: the first is where the cash sum is determined by reference to the member’s service and their final salary at retirement (or...

FORTHCOMING CHANGE: Under the Finance Bill 2025–26, unused pension pots and death benefits will also be treated as part of a deceased member’s estate, bringing them into the inheritance tax (IHT) net from 6 April 2027. These rules will not cover death-in-service payouts to active employees in relevant employment, nor a dependant’s scheme pension (that is, a DB scheme spouse’s or dependant’s pension). Existing exemptions, including those for spouses and civil partners, will continue to apply unchanged. Responsibility for settling any IHT will rest chiefly with the personal representatives in the first instance. For more detail, consult Practice Note: Inheritance tax and pensions; News Analyses: HMRC—Reforming inheritance tax—unused pension funds and death benefits; HMRC confirms new IHT rules on unused pension funds to apply from 6 April 2027; and HMRC policy paper: Inheritance Tax: unused pension funds and death benefits (November 2025). THIS PRACTICE NOTE RELATES ONLY TO REGISTERED MONEY PURCHASE OCCUPATIONAL PENSION SCHEMES Most pension arrangements generally offer benefits payable on a...