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Phased retirement provides a more flexible alternative for those who either wish to stagger their retirement, or alternatively do not intend to take any or all of the tax free cash to which they are entitled.

Typically at retirement tax free cash (usually 25% of the gross pension fund) will be taken and the remaining 75% is used to provide a retirement income, either through an Annuity or Income Drawdown (Unsecured Pension).

However, some people may wish to reduce their working week from say 5 days a week to 3.  They may therefore need to start drawing benefits from some, but not all, of their pension fund in order to plug the income shortfall.  Phased retirement enables part of the pension fund to be converted to income, via either an Annuity or Income Drawdown, whilst leaving the remainder invested until it is required.

Although the majority of people take the maximum tax free cash lump sum to which they are entitled at retirement, there are a minority who do not actually require this lump sum, and prefer instead to use all of the pension fund to provide an income.  If the whole pension fund is converted in to either an Annuity or Income Drawdown, the income produced is taxable.  Phased retirement enables the income produced to combine both tax free cash and taxable income in order to maximise the tax efficiency of the income produced.

It also enhances the death benefits available from the pension.  When an annuity is purchased, there are no death benefits except for those built in to the annuity at outset (widows pension, guaranteed period or capital protection).  With Income Drawdown, a surviving spouse can continue with Drawdown or purchase an annuity using all of the remaining fund, or they can opt for a return of the remaining fund as a lump sum, but this is subject to a 35% tax charge.

With Phased retirement, any segments that have not yet been converted to income, are available to beneficiaries after death as a tax free lump sum.

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