Learning Material Sample
Pension income options5. Phased retirementLearning outcome: Understand in detail the features, risks and tax treatment of phased retirement
A phased retirement strategy allows an individual to take their retirement benefits in stages as they are needed. This can be particu...
Shortened demo course. See details at foot of page. ... is all about targeting an income level and phasing benefits into payment as needed to meet that target following regular reviews. As with any phasing strategy, the starting point is for the member to decide how much income they want (after tax). Part of this income will be provided from the 25% PCLS, with the balance coming from the taxable annuity. The adviser or provider will perform the necessary calculations.
At the start of year two, the client’s target income needs are reviewed and further benefits are crys... Shortened demo course. See details at foot of page. ...total income in year 2 after tax is therefore £12,600 (i.e. £10,155 + £1,188 + £1,257).With the introduction of flexible lifetime annuities from 6 April 2015, phased annuity purchase is now more flexible than it had been before, as the annuity purchased each year could be either a conventional or flexible annuity, with different annuity types purchased each year. As with phased annuity purchase the aim of a phased drawdown pension strategy is to provide a target level of income after tax. Again, part of this income will be provided by the PCLS generated each time new benefits are crystallised.
The balance is provided by taking the maximum income allowed from the drawdown pension fund. The maximum income allowed will inevitably be higher for flexi-access drawdown than it will be for capped drawdown, as the whole of the crystallised element can be withdrawn. By taking maximum income, less of the fund needs to be crystallise... Shortened demo course. See details at foot of page. ...asing has the advantage that the potentially taxable income element taken can be varied and perhaps even left untouched once benefit crystallisation has occurred. This allows the member to manage their income tax affairs better.The reason that a member might choose UFPLS rather than FAD is simply down to availability of the option – if the member’s defined contribution scheme offers UFPLS but not FAD, they may be better off phasing using UFPLS rather than having to transfer to another plan (and incur the related costs and hassle) to access FAD. Prior to 6 April 2015, death benefit planning and inheritance tax mitigation was often the key driver for clients choosing to adopt a phased retirement strategy. One of the main benefits of phased retirement over full retirement was (and still is) the ability to tailor death benefits from crystallised rights and maximise tax-free death benefits from uncrystallised...
Shortened demo course. See details at foot of page. ...), the income paid to them will now be tax free if the member died before reaching the age of 75, regardless of whether the funds had been crystallised or not.Therefore, the decision to go into phased retirement rather than crystallise the entire fund is more likely to be based on the income tax considerations and whether triggering the MPAA would be an issue. Phased retirement is complicated and is usually about more than simply providing a retirement income. To work properly it requires ongoin...
Shortened demo course. See details at foot of page. ...or estate planningCan afford the administrative, investment and advisory costs that come with an active phased retirement strategy Tax efficiency - phasing can provide a very tax efficient income stream Flexibility - phasing is much more flexible than a one-off conventional annuity purchase allowing income and annuity bases to be varied to adapt to changing needs Investment grow... Shortened demo course. See details at foot of page. ...p sum on death before age 75. Even death benefits from crystallised funds can be tailored to an extent to meet specific needsWhy would you describe phased retirement as being capable of producing a tax efficient income? Answer : Purchase course for answer The main disadvantages of phased retirement are:
Lump sum - there is no immediate access to the PCLS... Shortened demo course. See details at foot of page. ...nsions and phased retirement strategies need to be actively monitored and reviewed regularly
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