Phased Retirement

Question 1

What are the drawbacks of phased retirement?

Answer 1

1. There’s no guarantee that the income received will be as high as the income from a lifetime annuity.
2. If income provided by annuities, the income cannot be varied once in payment, unless flexibility annuities used.
3. Deferring annuity purchase doesn’t guarantee a higher level of future income.
4. The value of remaining fund may not achieve the high level of growth required to maintain/achieve desired income.
5. Clients may decide prospect of future higher income does not compensate them for a guaranteed & secure level of income.
6. Not all TFC will be received as a lump sum as part is being used to provide income.
7. By delaying purchase of annuity, the benefit of mortality gain may be lost.

Question 2

What are the benefits of phased retirement?

Answer 2

1. The clients specific income requirements can be met.
2. Part of each payment includes TFC which can be used to provide an income & may reduce the overall liability to income tax.
3. The balance of pension fund continues to be invested therefore providing the chance of higher income in future.
4. As client gets older the uncrystallised funds would benefit from higher annuity rates.
5. If markets expects interest rates & gilt returns to rise, annuity rates may also rise, therefore resulting in higher income in future.
6. On death before 75, the proceeds can be passed to beneficiaries tax-free.