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.