A pension drawdown allows personal pension holders to make withdrawals from their pension fund (pension drawdown) instead of being required to buy a pension annuity with the pension remaining invested with an insurance company. This gives the pension holder more control over their pension.
Significant advantages of income drawdown are the ability to take the tax free lump sum of 25% while leaving the pension fund invested and improved death benefits for a spouse or beneficiaries. Although this option may be riskier than taking a pension annuity to begin with, you could save money by reducing your income in some years, thus avoiding higher rate tax liability.
Many people like to retire gradually, without giving up work altogether.
Phased retirement (or staggered vesting) is where you can take part of your pension and continue to work. It can offer a flexible approach to commencing and withdrawing pension benefits.
Staggered vesting can be made available to those who transfer from retirement annuities or some form of occupational scheme to a personal pension plan.
By allowing regular withdrawals from the pension fund, Phased Retirement plans achieve a level of flexibility. Your annual pension income is made up of tax free cash and an annuity or suitable drawdown arrangement. The balance of the fund then remains invested.
There are many other potentially complex issues to consider when using a phased approach to your retirement. Financial Advice from an appropriately qualified adviser is essential.
The value of your pension investments can go down as well as up, so you could get back less than you invested. Past performance is no guarantee of future returns.
Taking income or withdrawals in excess of fund growth may result in the fund running out quicker than expected.
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