IR 10                                             29 November 1994

       DEFERRAL OF PERSONAL PENSION ANNUITY PURCHASE

The Chancellor proposes in his Budget to allow members  of a 
tax-approved personal pension scheme to

- defer  purchasing an annuity at pension date,  if they wish, until 
  age  75;  and

- withdraw  amounts during the deferral  period which  are broadly 
  equivalent to the  annuity which their fund could have provided.

The  Chancellor's  intention is to give  personal  pension scheme  
members increased flexibility in the way they  use their personal 
pension fund.

The  changes will have effect in relation to approvals  of schemes or
amendments to schemes after Royal Assent to the Finance Bill.

                          DETAILS
Present position

1.   Under the tax rules an annuity must be purchased when any  
benefit is  taken from a personal pension fund.  This means  that 
people who retire at a time when annuity rates are  low  may  have to
buy a considerably smaller  annuity than  they could have done with 
the same fund if they  had been  able  to postpone purchase until 
annuity rates  were more favourable.

Proposed measures

2.    Under the proposed measures personal pension  scheme members 
who choose to defer purchasing an annuity will  be able  to  make 
income withdrawals in the deferral  period broadly  equivalent to the
annuity which their fund  could have provided.  Income withdrawal 
amounts will be reviewed every three years to  ensure  that  the  
pension fund  is  not  too  rapidly depleted.   Investment  income  
and  capital  gains   will continue to build up tax-free during the 
deferral  period.  The  proposed measures will apply whether or  not 
members elect to take the tax-free lump sum at pension date.

Legislation

3.    The  legislation for these measures will be included in the 
forthcoming Finance Bill.

                     NOTES FOR EDITORS

1.    The  Inland Revenue approve personal pension schemes under  
legislation contained in the Income and Corporation Taxes  Act  1988.
The requirements for tax  approval  are administered  by  the  
Pension Schemes  Office  (PSO),  an Executive  Office of the Inland 
Revenue.  Once  a  pension scheme  has been approved its activities 
are monitored  by the  PSO  to  make  sure  that it continues  to  
meet  the conditions for tax approval.

2.    Approved  personal pension schemes enjoy  favourable tax 
treatment.  Contributors to the scheme qualify for tax relief; the 
investment build-up within the scheme is  tax-exempt; and part of 
the benefits can be paid by the scheme as a tax-free lump sum.

3.   Assessments of the compliance costs imposing a burden on  
businesses  are available.  A copy of  the  Compliance Cost  
Assessment  for this proposal  can  be  obtained  by writing to:

                    Danny Connor
                    Inland Revenue
                    Deregulation Unit
                    Room F7
                    West Wing, Somerset House
                    LONDON WC2R 1LB