Phased retirement, also known as partial retirement, allows you to draw on your pension fund gradually rather than converting it all into an annuity or drawdown in one go.
In terms of retirement income, phased retirement refers to setting up multiple arrangements, such as fixed-term annuities and drawdown, in stages, to stagger the benefits while keeping the remainder of your fund invested.
It should not be confused with working phased retirement schemes, which are offered by some employers and allow you to reduce your hours and salary and draw any accrued pension and tax-free cash benefits while still working.
Many people are less dependent on their pension savings in the early stages of their retirement than they are later on. Phased retirement allows you to take the money you need right now while saving the larger portion of your savings for the future. Because you can take 25% tax free cash on any single pension pot, you can use this money to supplement your income, reducing your immediate reliance on annuities or drawdown.
If you’re planning on buying an annuity, you may be able to secure a higher rate of income by waiting until later in life, particularly if your health deteriorates and you become eligible for enhanced annuity rates.
Because it’s likely to involve taking out multiple plans and maintaining a delicate balance between your immediate needs and your anticipated needs for the future, phased retirement can be quite complicated. There can also be significant tax implications.
Also, while waiting until later to buy an annuity can result in more attractive rates becoming available, depending on how the market changes in the interim years, annuity rates could also go down – reducing the value of your pension savings.
An independent financial advisor can help you to work through the potential complexities involved with phased retirement, creating an action plan for securing the right income for each phase of your post-retirement life. They can help you to balance the pros and cons of phased retirement, and search the whole market for the best rates and personally tailored recommendations from the UK’s leading providers.
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