In detail

Coming up to retirement? Now’s the time to make some decisions

Is Phased Retirement right for you?

Converting your pension fund into a regular income may be the most important financial decision you’ll make in your life. You don't have to make a choice until you're coming up to your chosen pension age, however it’s probably useful to understand the options you’ll have. It’s particularly important to understand that, once you buy an annuity, its terms usually can’t be changed.

When the time comes, it’s probably wise to consult a Financial Adviser to make sure that any action you take is suited to your individual needs.

What is a Scottish Widows Phased Retirement plan?

The plan provides you with income (consisting of tax-free cash and taxable income) each year in a tax-efficient way, by converting your pension fund value into tax-free cash and annuities, or income drawdown, in stages. The rest of your plan value remains invested in our unit-linked investment funds until you decide to buy a final annuity.

Our Phased Retirement plan cannot accept Protected Rights funds.

Is there a minimum investment?

The minimum investment for a Scottish Widows Phased Retirement plan is £100,000.

Is the plan flexible?

Yes. You can decide how much of your plan is used to provide an income each year. Or you can use all of the remaining value of your plan at any time to provide a tax free cash sum, and income drawdown or final annuity. You must use the remaining value of your plan to buy an annuity by age 75.

You can transfer the remaining value of your plan to another pension provider before age 75.

If you wish, you can make further payments into your Scottish Widows Phased Retirement plan (minimum £10,000), subject to our acceptance, and HMRC limits. Payments you make to your plan can qualify for tax relief.

What will happen to my plan if I die?

The remaining value of your plan will be used to provide a lump sum payment, or a spouse’s* or dependant’s pension or pensions. Normally no inheritance tax is payable on this value, although any spouse’s or dependant’s pension will be treated as earned income, and taxed in payment.

If your plan is arranged under an individual trust, we will pay any lump sum benefit to the trustees, who will then decide to whom the benefits are paid. Otherwise, Scottish Widows will decide who the benefits are paid to. You can inform us of who you wish to benefit, and how, by completing a nomination form.

If you have previously used part of your plan value to buy an annuity or annuities, any death benefits available will depend on the terms agreed with the annuity provider(s). Inheritance tax may be payable on any remaining annuity installments.

If you have previously used part of your plan value to provide income drawdown, a lump sum or spouse’s* or dependant’s pension will normally be available from the value of that fund. Details of the death benefits available from the Scottish Widows Income Drawdown plan are given here.

* includes husband, wife or registered civil partner

What are the charges?

The plan charges will be detailed in your Personal Illustration, which also shows the effect these charges may have on the value of your plan. You can use your Personal Illustration to compare our charges with those of other pension providers. You can also compare the income you might receive from your Scottish Widows Phased Retirement plan, with the income that would be provided by other plans.

What are the risks?

When you buy an annuity, you normally convert the value of your pension plan into a secure income (although investment-linked annuities are available, the income from which can fall or rise depending on investment performance e.g. a Unitised Annuity). Because of the assumptions annuity providers make regarding life expectancy, you may benefit from ‘pooling’ the value of your pension with those of other individuals (this is often referred to as ‘mortality gain’). Once bought, you can’t normally change the terms of your annuity.

If you choose a Scottish Widows Phased Retirement plan, instead of buying an annuity immediately, you will invest the value of your plan in a range of Scottish Widows unit-linked funds, with the aim of benefiting from potential investment growth, and increased flexibility. At selected intervals, part of the value of your plan will be used to provide you with an income. Normally that income will be made up of a tax free cash sum, and an annuity or income drawdown.

Because the value of investments can fall as well as rise, so can the value of your plan. In addition, annuity rates can change at any time. This may mean that your plan can provide less pension income over the longer term than would have been available had you used the whole value of your pension plan to buy an annuity at outset. Also, the longer you delay buying an annuity (or annuities), the less you can benefit from ‘mortality gain’.

The income you take may be greater than any growth in the value of your plan.

A financial adviser can assess your attitude to risk, as well as your income requirements, to help you decide whether or not our Phased Retirement plan is suitable for you.

How do I choose my funds?

Your financial adviser will help you to invest your plan. Scottish Widows offers a broad range of investment funds for you to choose from; some managed by us and some by other fund managers. You can invest in up to 10 funds at any one time. You may also be able to switch between funds to change your mix of investments, although there could be a charge for this. We may change the selection of funds we make available at any time.

What other options are there for retirement income?

Income Drawdown

Income Drawdown allows you to take a tax free lump sum immediately and leave the balance of your fund invested. You can then take a taxable income from your fund until you are ready to buy an annuity. You must use the remaining value of your plan to buy an annuity by age 75.

You can decide to transfer to another income drawdown plan before age 75.

Our Income Drawdown plan has many of the flexible benefits of Phased Retirement, and they can be combined. You should consult a Financial Adviser to discuss this option.

Annuities

Annuities offer a choice of a secure income for life (called a Conventional or Traditional Annuity), or an income with some growth potential through unit linked funds (called a Unitised Annuity).