When a person retires and the annuity start paying out what is the tax liablity for the company?

Question

I am studing for the state exam. Just need a little help from some one.

Answer 1

There are two types of Pension scheme in UK - Money Purchase and Final Salary.

Normally all the Pension contributions are invested (usually in the stock market) by some outside experts. In the case of a Money Purchase pension, the pension payment depends on how well the Investments perform, whilst for Final Salary the payments depend only on length of service and final salary.

The term 'annuity' is normally associated with the Money Purchase type, and in this case I would think there is no additional liability for the Employer (because the annuity will be purchased by 'cashing in' the investments and provided by an outside Insurance Company).

However if we are talking about a Final Salary Pension, then the Employer is required to make whatever additional contributions are needed so that the Pension (based on service/salary) can continue to be paid whatever the state of the stock market. These Company contributions are an allowable expense (at least in UK), so no tax to pay ...

Answer 2

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