IR 11                                             29 November 1994

            PENSION SCHEMES:  ANNUITY PURCHASES

The  Chancellor proposes in his Budget to  amend  the  tax rules  for
approved pension schemes to allow the  trustees or  managers  of 
these schemes to purchase annuities  from certain  insurance 
companies established in other European Union countries.

The  Chancellor's intention is to bring the tax rules into line  with
the  requirements of the Third Life  Insurance Directive.

The measure will take effect from the date of Royal Assent to the 
Finance Bill.

                          DETAILS

1.    One  of the ways that tax approved occupational  and personal  
pension schemes provide benefits is by  securing pensions  through 
the purchase of an annuity from  a  life insurance  company.   At  
present  the  tax  rules   limit annuities  to those provided by 
United Kingdom  authorised insurance  companies.  The Third Life 
Insurance  Directive (which entered into force on 1 July 1994) 
creates a single market  in  insurance  products  throughout  the  
European Community   and   is  one  of  a  series   of   Directives 
implementing the Single Market in financial services.

2.    Under  the  Budget proposal the range  of  insurance companies 
that  can  provide annuities  to  tax  approved pension  schemes  
will  be extended  to  include  insurers established  in  other 
Member States.  This  reflects  the obligations under the Third Life 
Insurance Directive.

3.    It  will,  however,  be necessary  for  the  foreign insurance 
company  to appoint a fiscal representative  in the  United Kingdom 
(or enter into other arrangements)  to secure  compliance  with  the 
company's  tax  obligations (which  include the deduction of income 
tax  from  annuity payments under the Pay As You Earn system).


                     NOTES FOR EDITORS

1.    The  Inland  Revenue  approve  occupational  pension schemes  
and  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  pension  schemes  enjoy  favourable   tax treatment.
Contributions 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.  Any 
pensions or annuities paid  by  occupational pension schemes are  
chargeable  to income  tax  under the Pay As You Earn system.   
Annuities paid under personal pension schemes will be brought within 
the Pay As You Earn system from 6 April 1995.

3.   This proposal has no Exchequer costs.