Compulsory Purchase Annuity

A compulsory purchase annuity is used when you are a member of a defined contribution money purchase occupational pension scheme - or the holder of a personal pension plan - and are obliged to use the pension fund created to purchase an annuity to provide an income to fund your retirement.

Previously, you could purchase this annuity on retirement but were not obliged by law to do so until you reached the age of 75, whereupon you had to use your accumulated pension fund to do so.

Under the new pensions regime, which came into effect in 2006, you are no longer forced to purchase an annuity at age 75 but are required to use your pension savings to create a guaranteed income by the time you reach the age of 75. This alternative is called Alternatively Secured Income and is available to those with what the HM Revenue & Customs calls 'principled objections to the pooling of mortality risk'. However, the absence of any lump sum death benefit as part of this arrangement may make this option unattractive to most people.

Go to Moneyextra's Pension section.

Last Updated: May 2007 © Moneyextra.com

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