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retirement options
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Phased Retirement and Unsecured Pension
You could transfer your existing fund into a Phased Unsecured Pension plan. These plans combine Phased Retirement and Unsecured Pension within one contract, combining the advantages of both.
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How does it work?
A Phased Unsecured Pension plan is a personal pension divided, typically, into 1,000 arrangements, similar to phased retirement. Any number of these arrangements can be used at any time between age 50 (55 from April 2010) and age 75, to provide your retirement income.
The income each year, could comprise of:
- A combination of tax free cash and an annuity (Phased Retirement)
- A combination of tax free cash and income withdrawals (Unsecured Pension)
- A combination of tax free cash, an annuity and Unsecured Pension
What happens on death before age 75?
If you were to die before all your arrangements have been used to purchase an annuity the benefits paid out will depend on the state of the remaining arrangements.
- Arrangements still invested:
The value of any arrangements which are still fully invested may be used as follows:
- Taken as a lump sum, normally without any Inheritance Tax liability.
- To purchase an annuity for your spouse or beneficiaries, or
- To provide Unsecured Pension for your spouse or beneficiaries.
- Arrangements you have started
to withdraw income from:
If you were to die after starting to withdraw income from your arrangements, your spouse or dependants have the following options:
- Use the value of the arrangements as a lump sum to purchase an annuity.
- Take the remaining value of the arrangements as a lump sum, after a tax deduction (which is currently 35%). This option can be taken at any time within two years of your death.
- Continue with income withdrawals - your spouse or dependants may continue Income withdrawals until their 75th birthday at which time they must move to either Alternatively Secured Pension or purchase an annuity.
- Arrangements used to purchase an annuity:
- If you were to die after all 1,000 arrangements are used to provide an annuity, your death benefits would depend on the type of annuity you purchased.
What happens on death after age 75?
This depends on whether you used your pension fund to purchase an annuity or moved to Alternatively Secured Pension. Further details can be provided on request.
Advantages
- You may benefit if annuity rates improve in the future.
- Each time you purchase an annuity you will be able to decide on the most appropriate one for you at that time.
- You can delay buying an annuity. This means you can avoid buying an annuity if, for example, you think annuity rates offer poor value for money.
- A combination of phased retirement and income withdrawal offers the most flexible way of taking income, enabling you to alter it within minimum and maximum limits and combine tax free cash with income withdrawals and annuity purchase.
- You will retain investment control of your pension fund, and could increase your pension income with good investment growth.
- Your pension fund will continue to be invested in a tax efficient environment.
- Benefits on your death could be greater than if you purchased an annuity, although a 35% tax charge is levied on any funds you have started to draw income from.
Disadvantages
- There are no guarantees your income will be greater than if you used all your fund to purchase an annuity at retirement. If annuity rates fall, or investment growth is poor, your retirement income could be lower.
- If too much income is withdrawn your fund may run out too early.
- You can only take the tax-free lump sum when withdrawals start, it cannot be deferred.
- Your death benefits under phased retirement may be greater, because of the 35% tax charge.
- You may need to purchase an annuity by age 75, even if annuity rates are poor. You could move to Alternatively Secured Pension. However, this may mean that the income you are receiving is reduced.
- Initial and on going charges are usually higher than those associated with a conventional annuity and have to be taken into consideration.
- Continuing advice is essential, at least annually in order to monitor the investment performance of the fund and your income requirements.
- Every five years from the date that income withdrawals have started, the minimum and maximum withdrawal amounts will be recalculated (based on rates issued by the Government Actuaries Department). This may lead to a change in the level of withdrawals you can take.
Protected Rights
Under current legislation, it is not possible to take benefits from Protected Rights via phased retirement.
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