Beginners’ Guides

Beginners’ guide to pensions and retirement

Phased retirement

If you intend to ease yourself into retirement gradually, then you might want to consider phasing your retirement. On a regular basis, usually annually, you can use part of your pension pot to provide a taxable income, or take a tax-free cash lump sum and reduced income.

Your income can be provided either by buying an annuity, or by income drawdown.

The part of your pension pot not used to provide an income (and tax-free cash) remains invested with your pension provider. If you die before you’ve taken all your pension pot, the remainder can be used to provide a lump sum death benefit to your beneficiaries. Alternatively, it can be used to provide a taxable income for your dependants.

Before you buy here are a few questions to ask yourself:

Am I intending to give up work all at once or gradually cut down my working hours?
Do I have other income, for example from savings, to supplement my pension income?
Am I willing to take the risk that my overall income could be less through phased retirement than by taking it in one go via an annuity and cash lump sum?
Do I want to manage my pension fund and the income I receive?
Do I want to be able to leave a lump sum death benefit to my family should I die before the phasing is complete?
Is my pension pot big enough to allow me to phase my retirement? The minimum fund size is typically £100,000.

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You should always take financial advice before making any decisions about how to take your retirement income.

Another option you could look at is to take out an equity release scheme which could possibly top up the amount you receive.

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