Phased Retirement

Phased retirement is a pension benefit option that suitable for individuals who do not require an immediate tax-free cash lump sum as part of their pension benefits.

Phased retirement has the following advantages

• The pension fund is split into 100 or more segments
• Pension benefits are provided by using only a few of the segments each year
• You have a degree of control over your "income"
• Most of the "income" is not taxed
• Death benefits are better than if an annuity is purchased
• In the early years most of the death benefit is free of inheritance tax

Phased retirement works by using the tax-free cash from segments of the pension fund to supplement the small pension annuity that each segment purchases.

For example. A £100,000 pension fund is segmented into 100 funds of £1000 each.

In year 1 two segments are used to provide

• An annuity of £75 per annum
• Tax-free cash of £500

I.e. an income of £575 (Of which only £75 is taxable).
The policyholders still has 98 units untouched (Worth say £98,000).

In year 2, two more segments might be used to provide a further

• Annuity of £75 per annum
• Tax-free cash of £500

And the policyholder is still receiving the £75 per annum annuity purchased in the previous year. I.e. the policyholder receives an income of £650 (Of which £150 is taxable).

At the start of year two, the policyholder still has 96 units worth £96,000 plus any growth on the fund in the previous year.

The policyholder is in control - In year 3, he or she could choose not to draw on any segments and would then receive only £150 per annum. Or he or she could cash more segments to increase income. This can be very useful for income tax planning.

For more information about Phased Retirement, Contact Us or use the Enquiry form.