Phased retirement

For phased retirement schemes to work, the personal pension needs to be made up of a large number of separate sub policies. This is often described as a clustered arrangement or segmentation. It is fairly common to find plans with as many as 1,000 sub policies. Once set up, such a scheme will pay out an income by opening one or more sub policies and securing an annuity. By taking the benefits available under some of the sub policies and deferring the benefits available under others, substantial flexibility is achieved in the timing of annuity purchase.

Phased retirement is not a new concept and has been a feature of retirement planning for a number of years. It enables you to build up or 'phase' your pension benefits over a period of gradual retirement. It can give substantial flexibility, especially in cases where you have no immediate need for the maximum tax-free lump sum.
For phased retirement schemes to work, the personal pension needs to be made up of a large number of separate sub policies. This is often described as a clustered arrangement or segmentation. It is fairly common to find plans with as many as 1,000 sub policies. Once set up, such a scheme will pay out an income by opening one or more sub policies and securing an annuity. By taking the benefits available under some of the sub policies and deferring the benefits available under others, substantial flexibility is achieved in the timing of annuity purchase.

The desired level of income can be achieved by taking high levels of tax-free cash moving to lower levels of tax-free cash and higher levels of annuity purchase as age increases, taking advantage of the generally higher rates available at older ages.
The added flexibility is not only linked to income. Death benefits are also improved through the fact that any unopened sub policies are paid out to your beneficiaries, usually free of Inheritance Tax (IHT), along with any guarantees associated with the annuities originally purchased.

Phased retirement is generally suitable only if you have a fairly large pension fund, or have other assets or income to live on. This is because the bulk of your pension savings remain invested - usually in the stockmarket - which may be more risky than buying an annuity straight away.

It is also possible to combine phased retirement with pension fund withdrawal to provide even greater flexibility in taking both tax-free cash and the regular income you require year on year.

Due to the complex and varied options available it is strongly recommended that you seek professional advice from Pall Mall Financial who can guide you towards the most suitable plan for your personal circumstances.

Questions - Contact us by email or telephone on 0207 407 8787.