Phased Retirement

Pensions

Phased Retirement

We understand the changing lifestyles of people approaching retirement. Many people no longer make a ‘once and for all’ decision to retire.

You may wish to ‘partially retire’ or ‘phase-in’ your retirement by, for example, working on a consultancy basis for a period.

Income Drawdown can help, by allowing you to defer the purchase of a lifetime annuity, whilst drawing an income from your fund, if required. However, if your entire pension fund is applied to income drawdown, you must take your ‘Pension Commencement Lump Sum’ (PCLS) at the outset, if you require it; otherwise, you will lose your entitlement to it.

It is for this purpose that many Phased Retirement and Income Drawdown contracts are sub-divided into several hundred segments. This means that you can choose to take benefits from a certain number of segments and leave the remainder uncrystallised in a “Phased Retirement Plan”. Part of each segment ‘crystallised’ to provide pension benefits can then be paid as a (potentially tax-free) PCLS, with the remainder being used to provide a (taxable) income. This may be provided either by income drawdown, or by the purchase of an annuity.

Therefore, with a Phased Retirement Plan (“the Plan”), it is also possible to phase the purchase of annuities.

Here, a specified number of segments could be used to purchase a lifetime annuity, with the remaining segments staying fully invested in the Plan.

In summary, by following a ‘phased’ approach, you maintain full control over the income amount you receive, which is met by a combination of (potentially) tax-free PCLS payments and either annuity and/or income withdrawal payments.