Pharmacists Choosing The Right Option At Retirement - Phased Retirement
There are numerous options for pharmacists wishing to produce income in retirement from their accumulated pension funds. In the first of a series of detailed articles, we took a look at guaranteed annuities. We also considered investment-linked annuity purchase. In this article we shall examine the option that is phased retirement, which may also be known as staggered vesting.
The main objectives of phased retirement are: -
• To provide greater flexibility and a degree of control over income production from an accumulated pension fund.
• To provide greater death benefits than are available through an annuity.
• To leave open the opportunity to vest in Alternatively Secured Pension (ASP) upon attaining the age of 75.
A principle benefit of phased retirement is that the plan can provide a very tax efficient income stream. This is because part of the income is actually made up of tax-free cash (also known as pension commencement lump sum). Historically it has facilitated this by virtue of plans actually being a collection of smaller policy segments. Indeed it was common for a phased retirement policy to be structured as 1,000 or even 10,000 identical and individual arrangements, each of which could be drawn upon separately. However, more modern variations now take advantage of the ability to partially vest from a single arrangement.
As the name suggests, these plans are ideal for those that wish to phase into retirement, those that wish to reduce their working week before finally calling it a day altogether. Such individuals are likely to see a reduction in their income and this type of arrangement facilitates a replacement of this income whilst retaining the remainder of their accumulated fund in a largely tax-free investment environment.
These arrangements are not suitable for everyone. They are suitable for those that have significant pension funds, typically in excess of £100,000. This is dictated largely by providers’ minimum fund thresholds and the administration and advice costs that apply.
They also suit those pharmacists with a variety of sources of income or capital, which results in no immediate need for the tax-free cash lump sum and facilitates a holistic and sophisticated approach to retirement planning. Where tax-free cash is required immediately, full vesting by way of annuity purchase or Unsecured Pension (USP) is a more appropriate option. Phased retirement is also a consideration where such an individual is comfortable with continuing investment risk in retirement.
Phased retirement may also be advantageous to those that are uncertain about their health or that of their spouse / civil partner but cannot afford to postpone retirement planning altogether. This would provide the opportunity to perhaps take advantage of higher, impaired life annuity rates where health is deteriorating, avoid committing to widow / widower provision and retain valuable death benefits from the remaining fund.
Phased retirement can be effected with phasing into annuity purchase or USP, although in regard to the latter option, this is an even more complex arrangement and suitable only for the more sophisticated investor.
There are both advantages and disadvantages to phased retirement and ones that should not be considered without the benefit of professional, independent financial advice. Afterall, every individual’s circumstances are different. However, once decisions are made in regards to these issues, an appropriate means of providing for income in retirement can be recommended. Should you require assistance in this regard, please do not hesitate to contact one of our Financial Services Partners, Steve Prosser, Jeff Crewdson or Chris Raggett to discuss your requirements more fully.
In the forthcoming final article of this series, we shall the take the opportunity to consider the alternative retirement option known as Unsecured Pension (USP) through which pension income can be produced for retiring pharmacists.
Date of Article: 27th July 2009
