Pensions and Annuities

[ST6_aspirant]

General question: are all pensions, related to those sponsored by employer, secured via purchase of annuity from the employer? Do all of them need to be commuted, ie take some tax free cash element and the remaining will be taxed as normal income when paid to the member?

 

[bystander]

all depends on the scheme rules. On the UK there are some schemes that offered explicit cash and a pension as two separate benefits so no commutation needed - they were typically public sector rather than private employer schemes.

 

[ST6_aspirant]

Thanks. I just read that there is an income drawdown option too.

 

[Lindsay Smitherman]

Hi: yes, as bystander says it will depend on the scheme rules and also the jurisdiction, the latter being both in terms of pensions legislation and tax legislation in that country.

Don't forget that employer-sponsored pensions can be either defined benefit or defined contribution (or defined ambition: somewhere in between), and that can also effect the form in which pension benefits would typically be taken. For example, the income drawdown option that you mention is relevant to defined contribution arrangements.

You don't need to worry about the specifics of pensions legislation/taxation in various jurisdictions for CA1 - just make sure that you have a good understanding of the different formats of pension-related benefits as set out in the course notes.