IPTM4310 | Purchased life annuities: partial exemption scheme: effect of life and other contingencies on term of annuity and on amount of annuity payments

The term of every purchased life annuity is dependent on the duration of human life by definition –see IPTM4220.
By ‘contingency’ is meant something related to a possible future and uncertain event. The amount of the annuity payments may also be so dependent. The term or amount may or may not be dependent on some other contingency.

If the amount of the annuity payments depends solely on the duration of human life, a constant proportion of each annuity payment is exempt, called the exempt proportion.

If the amount of the annuity payments does not depend solely on the duration of human life, because it is subject to some other contingency, a constant sum is exempt, called the exempt sum.

The method of calculating the exempt proportion or exempt sum depends on whether, as will usually be the case, the term of the annuity is solely dependent on the duration of human life, and not on some other contingency.

If the annuity term is solely dependent on the duration of human life, the formulae in IPTM4320 (exempt proportion) applies.

If, exceptionally, the annuity term is dependent on some other contingency in addition to that of human life, the exempt proportion or exempt sum is calculated on a just and reasonable basis, having regard to both the additional contingencies and the relevant formula – see IPTM4330 (exempt sum).