Buy Out Bond to Annuity

The value of an established Buy out Bond varies with the investment performance. Also the potential annuity from the BOB is dependent on prevailing annuity rates when the annuity is started. How does this get handled from the perspective of Revenue Limits. (e.g. n/60ths)?

Does the actual annuity just get calculated by the insurance company based on BOB value, the annuity rate and the options chosen, and then get checked against the n/60ths rule? Or is there some other formula used to determine the limit?

When transferring to a Buy Out Bond, the Buy Out Bond provider should check at the time of transfer if the funding level is in breach of Revenue limits, or potentially so, using reasonable projections.

Assuming it's not, there are no further funding checks. If the Buy Out Bond fund performs wonderfully and annuity rates soar by the time the policyholder retires, that's his/her good luck. They will get the resulting annuity, regardless of how it relates to the original scheme salary or years of service.

There's no facility to make a refund of an over-funded amount at retirement from a Buy Out Bond as it would involve refunding to the original scheme. The original scheme may have been wound up years prior to retirement.

Liam D. Ferguson
www.ferga.com