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Published online by Cambridge University Press: 11 August 2014
‘Income tax is another subject on which it is difficult for me to speak freely, but I cannot refrain from noting that the general taxation position, as it now affects life assurance and pensions business, has given rise to serious anomalies: …one has only to consider…that the terms quoted by offices for the purchase of life annuities vary to a quite remarkable extent, depending on the distribution of the company's business between various funds, as it exists at the moment, and the consequential incidence of tax;…’
(J.I.A. Vol. LXXV, p. 7.)With these words Sir George Maddex, in his Presidential Address, directed our attention to the present system of taxation of annuity funds. M. E. Ogborn (1), on 27 October 1947, touched on the subject of uneven incidence of tax upon differing funds, and some uneasiness about the consequences was manifest in the discussion on that paper.
Much has been written in recent years upon the general subject of taxation of annuities. S. J. Rowland and F. H. Wales (2), A. H. Shrewsbury (3), and M. E. Ogborn (1) have fully described and commented upon the present method. Relatively little attention, however, has been devoted to the effects of the system upon annuity funds, probably because it is only recently that we have become aware of its full implications. There is some need therefore to review the consequences and to investigate more closely the actuarial problems which follow.
It is proposed here to analyse the effects of the system and, proceeding from some simple basic principles, to point to a method of solution of the actuarial problems connected with valuation, investment and the terms for new business and withdrawals.