Phased Retirement
Phased retirement, (also known as 'staggered vesting'), allows the purchase of a pension to be phased, thereby allowing flexibility when considering retirement
Phased Retirement plans achieve this flexibility by periodically encashing segments of the plan to produce pension income. These plans are usually split into many individual segments, perhaps a 1,000 or more, to assist the process.
Each year the level of required pension income is determined, this subsequently determines the number of segments which must be encashed to meet the income need. The annual pension income is composed of a combination of tax free cash and annuity from the individual segments. The remainder of the fund remains invested and may benefit from any market growth in its underlying investments.
These plans are available up to the plan holders 75th birthday, at which point the remaining segments must be converted into either pension annuity income or transferred to an Alternatively Secured Pension plan.
Phased retirement plans tend to carry higher management charges and due to their nature are usually only considered suitable for clients holding pension assets in excess of £100,000. One other drawback of these types of plan is that the Pension Commencement lump sum ( tax free cash) is not available on vesting the pension benefits into the Phased plan. The tax free part of the encashed segments form part of the annual pension income. (Any remaining tax free lump sum is not available until the final vesting of the remaining segments).
Phased Retirement plans are relatively complex and are not suitable for everyone, but they can for some individuals offer a flexible approach to retirement and potentially increased death benefits. Careful consideration must be given to an individuals personal circumstances, including the value of their existing pension/s. We strongly recommend advice from us be sought if you are considering this option.
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