Retirement annuity contracts (RACs) are a relic of UK pension history — no new ones have been issued since 1988, but millions of people still hold them from the era before modern personal pensions took over. If you have a RAC, it is worth understanding what makes it different, because some RACs contain protections that a modern pension cannot replicate.
A Brief History of RACs
Before 1 July 1988, self-employed individuals and employees without access to an employer’s pension could take out a retirement annuity contract with an insurance company. These policies operated under a different regulatory framework (Income and Corporation Taxes Act 1970 and related legislation).
When the Finance Act 1987 introduced modern personal pensions, RACs were closed to new business from July 1988. Existing RACs were allowed to continue under “grandfathered” rules that preserved their original terms.
RAC Rules vs Modern Personal Pension Rules
| Feature | Retirement Annuity Contract (RAC) | Modern Personal Pension (post-1988) |
|---|---|---|
| Still open to new business? | No — closed since 1988 | Yes |
| Tax-free cash | May be above 25% under original policy terms | 25% up to £268,275 lump sum allowance |
| Minimum access age | May be below 55 under original contract | 55 (57 from April 2028) |
| Contribution limits | Historically % of earnings; now modern AA rules apply | Annual allowance: £60,000 or 100% earnings |
| Death benefits | Varies by original policy | Flexible under modern pension rules |
Protected Benefits — What to Check
The most valuable RAC protections to check with your provider:
Guaranteed Annuity Rate (GAR): Some RACs include a guaranteed rate at which the insurer will convert your pot to an annuity. GARs issued in the 1970s and 1980s often guarantee rates of 9–12% — far above today’s open market annuity rates (typically 4–7% for a 65-year-old). A GAR of this kind could be worth tens of thousands of pounds more than the open market equivalent.
Enhanced tax-free cash: Some RACs allow more than 25% of the pot as tax-free cash, based on the original policy wording. HMRC allows these enhanced amounts under “scheme-specific lump sum protection.”
Protected minimum pension age: If your RAC specifies a minimum access age below 55, that lower age may be preserved under HMRC’s “scheme-specific lump sum protection” and related transitional rules — but only as long as you do not transfer to another scheme.
Do Not Transfer Without Checking
Transferring a RAC to a SIPP or another pension scheme causes any protected benefits in the RAC to be permanently lost. Before considering any transfer:
- Request a full benefits statement from your provider
- Ask explicitly whether the policy includes a GAR, enhanced tax-free cash, or protected pension age
- If any protections exist, obtain regulated financial advice (FCA-authorised) before proceeding
Accessing Your RAC in Retirement
Modern pension access rules apply to RACs since the pension freedom reforms of 2015:
- Tax-free cash: Up to the amount protected under your policy, within the lump sum allowance
- Drawdown: Available (though older insurers may not offer drawdown; you may need to transfer to access it)
- Annuity purchase: If you have a GAR, check whether the open market provides a better rate or whether the guaranteed rate is superior
- Uncrystallised Fund Pension Lump Sums (UFPLS): Each withdrawal is 25% tax-free, 75% taxable