Drawdown / Phased Retirement

 
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It may be that you don't want to take all your pension benefits in one go. Perhaps you don't need all the income now and would like to keep some back for later or maybe you are still working. Whatever your reason for wanting a slow start or phased retirement we can help you. We are confident that like the majority of our customers you will be delighted with our service.

'From the time I got in touch with Platinum Financial I received excellent treatment throughout. Very helpful answering all questions, clear and precise explaining procedures, kept in touch on progress. Very professional approach, service is second to none. Job well done, Thanks'.
Mr Robert Maylor  - Liverpool   10 out of 10

Slow Start Annuity / Phased Retirement - What is it ?

There are a number of ways to facilitate a slow start annuity or phased annuity. The route you take is likely to be dictated by your current pension plan(s).

Your options are most likely to be dictated by the amount of tax free cash you want to take at outset. The answer to this queston will dictate what type of contracts you could use.

This phased approach to retirement planning tends to help people who don't need to take all of their pension benefits in one go. This approach could allow you to gradually stop working and ease you into your retirement.

You may initially want to take a pension lump sum. We can help with this. You may also want an income, but not the full amount at outset.

Depending on your circumstances, there are a number of options for you to consider, such as converting parts of your pension fund in to an annuity, (if your pension plan is 'segmented') or you could make use of an income drawdown contract which will allow you to take the maximun tax free lump sum in one go, but keep income payments to a minimum.

Taking an index linked annuity, would have the impact of giving you a lower starting income, which would nevertheless increase each year in line with a known percentage or an index such as the Consumer Price Index (CPI). This annuity and its increases would be guaranteed for your life.

Either way that's where we come in.
For help please call us on 020 33 55 4827. Request our FREE service now

Slow Start Annuity / Phased Retirement - What you need to decide

There are many factors you will need to consider, the most important of which is the type of product you choose to achieve your objective. This is most likely to be an annuity purchased with part of a segmented pension fund, or income drawdown.

If you select an annuity, you will need to decide on: level or index linked benefit, a pension for your partner, a guaranteed period, paid in advance or arrears, as well as a number of other features. Full details appear at the bottom of the page.

Once you have decided on the product you want, you need to make sure all the providers quote on exactly the same basis, otherwise it will be difficult to identify which product is truly best for you.

This is where we can help. We will obtain quotes from all providers on exactly the same basis and present all quotes to you in an easy to understand format so that you can choose which is best for you.

For help please call us on 020 33 55 4827, or use our on line form

Slow Start Annuity / Phased Retirement - What you need to decide

We simplify what can be a very confusing and time consuming process.

We will provide you with quotes on whatever basis you choose. We are happy to continue to provide you with quotes until you are happy. It is your retirement and it is important to us that you are happy with your selected product.

We present all our findings to you in an easy to understand information report, to enable you to make a decision about how you want to proceed. This means your time is spent making the important decisions and not managing a vast array of paper. We offer a completely free quotation service. All customers also receive a personalised information pack which tells you everything you need to know about your retirement options.

We will complete all relevant paperwork for you and liaise with the various companies to make this a hassle free transaction for you.

Our Service is FREE, Request Quotes Now !

 
 
 
 
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Slow Start Pension Annuity / Phased Retirement - What is it ?

For some people, taking all of their pension in one go may not be the best for their personal situation. You may decide that some form of phased retirement, or a method of slowly increasing your pension over time, is your best option.

You may decide that leaving your pension fund (or some of it) for the future is exactly what you want. For example, you may have an alternative source of income, or rather than giving up work, you may slowly reduce the hours you work.

In our experience most people will be clear on how they will deal with their tax free cash, and therefore this section will only focus on the options around managing your monthly pension income.

The first thing to remember is that if you are looking to take a smaller income which will increase over time, then an index linked Pension Annuity may suit you. The pension will start at a lower level and will increase each year with inflation.

If you are looking for a more sophisticated approach, then using a Drawdown contract could be the answer.

WARNING : Income Drawdown contracts are very sophisticated products and carry a significantly higher degree of risk than an annuity contract. See Income Drawdown Risk below. Our standard service is to offer Income Drawdown without advice. It is for the customer to decide if the product is appropriate to their needs and circumstances. If you are at all uncertain about income drawdown or if it is appropriate for your needs, we strongly recommend you seek financial advice.

Unlike an annuity where you exchange all of your pension fund (after any pre-commencment lump sum) for a monthly income, the Drawdown contract will allow you to take an income directly from the drawdown pension fund. The rest of the fund remains invested and hopefully, with prudent fund management, it will continue to grow. Of course your fund could also lose money thereby eroding your income in retirement.

In April 2011, the Government changed the rules on the income you could take from a Drawdown contract. Very simply, if you have over £20,000 income per annum coming from other pension sources then the income you take from your income drawdown contract is classified as "Flexible". This is known as the Minimum Income Requirement (MIR) for more details please see below.This means the the Government Actuary’s Department (GAD) rules (discussed below) don't apply and you could take as much income from your fund as you wished. However it should be remembered that any amount taken will be treated as earned income and therefore taxable. This could push you into higher rate tax.

If you feel you will qualify for Flexible Drawdown please make sure you fully understand the Minimum Income Requirement.

For those people who do not have £20,000 per annum from alternative pension sources, the income you take from a Drawdown contract is classified as "Capped". In this situation you must abide by the GAD rules. In our experience most customers would not qualify for "Flexible" Drawdown.

The government sets limits on the minimum and maximum amounts you can take from your drawdown fund, depending on your age. The limits are set by the Government Actuary’s Department (GAD) and indicate what percentage of your pension fund can be taken as income, based on your age. Don’t worry, your Drawdown provider will calculate all this for you, although the tables are available to download from the Government Actuary Department if you are interested.

The amount you can take is specified as a percentage of Government Actuary’s Department or GAD. Once set, you have a choice about how much of GAD you want to take within a specified range. The range goes from 0% GAD to 120% GAD.

This means that if the GAD table indicated that, based on your age and the size of your Drawdown pension fund, you can take £1,000 income per month, then you can select anywhere between £0 per month (0% GAD) or £1,200 per month (120% GAD).

If your fund allowed for £1,000 per month to be paid, but you only needed £400 per month, we would set your initial income level at 40% GAD. You can alter this amount each year. Most providers review your overall GAD entitlement every 5 years. This review could result in the income you are taking either increasing or decreasing. This will mainly depend on the value of your fund.

You cannot add any un-taken income in one year onto the income of another year. For example, if you could take an income of £900 per month but only chose to take £400, you could not add the £500 per month onto the income you took in the next year, i.e. If 120% of GAD in the following year was £1,200 per month, you couldn’t take that plus the £500 that you didn’t take in the previous year.

Minimum Income Requirement (MIR)

To qualify for and use flexible income drawdown you must :

  • have a minimum income secured through other pension means of at least £20,000 pa. Income taken under this option is also taxed at your highest marginal rate.

  • have paid no contributions (or had any contributions paid on your behalf) in the same tax year in which flexible drawdown is to be taken.

  • to be eligible you must also not be an active member of a defined benefit or cash balance scheme. Contributions made into a money purchase scheme, made in the same tax year as the election to use flexible drawdown will be subject to an Annual Allowance tax charge taxed at the highest marginal rate, resulting in no financial gain.

If you do not meet the criteria above your Income Drawdown contract would be classified as "Capped"

For some people, particularly those with large pension funds, they do not like the idea of a conventional annuity where the entire fund is given to the annuity provider, because under certain circumstances, should you die, you run the risk of the remaining fund being lost to your estate.

The Drawdown option keeps the asset within your estate and within your control. If the fund is still in place at the time that you die, the fund value will pass to your estate. Depending on who receives the fund on death and how it used, will depend if and how it is taxed. If it is taken as a lump sum, based on current rates, it would be taxed at 55%. Nevertheless some people still find this an attractive option compared to losing all of the fund to an annuity company.


Slow Start Pension Annuity / Phased Retirement - How We Can Help

We will work with you by providing quotes and information that allow you to decide on a pension contract that helps you achieve your goal. If you are at all uncertain you should seek financial advice.

We do all the work for you in contacting all the providers, obtaining quotes and then ensuring all those quotes are on a like for like basis. Once we have done that we will present those quotes to you in an easy to understand information only pack.

Our aim is always to leave you in control while making the process for you as simple as possible.

We are always on hand at the end of the phone to update you on progress and answer any questions you may have.

We will of course recommend that you look at your current pension arrangements to understand if you have any special terms and conditions attached to it. If you do have such conditions you may still be able to switch providers if necessary, but at least you will have made a decision based on all the relevant facts.

Please feel free to call us on 020 33 55 4827 to discuss any aspect of your retirement planning.


Slow Start Pension Annuity / Phased Retirement - What You Need to Decide

If you think some form of phased retirement or a method of slowly increasing your pension is your best option, then call us, as we are ideally placed to help you.

You can contact us in a number of ways using the various forms on this website, or just call us on
020 33 55 4827.

If we end up using a standard annuity to achieve your goals, then there are no major risks as everything is guaranteed from outset.

A Drawdown solution may be a much better fit for your needs, but there are some important risks as well as some benefits. Please see below for more information.

Benefits

You have significantly more control over the monthly income you receive as you can take anything between 0% and 120% GAD. Depending on your circumstances, selecting an income at either of these maximum or minimum limits could have a major positive impact on your longer term retirement planning.

If you meet the Minimum Income Requirement you could take any amount of income that you want, taxed at your highest marginal rate.

By keeping your pension invested, you have the opportunity to manage your investment options until you want to purchase an annuity. A good investment strategy could replace the amounts withdrawn from the fund.

At any point you have a number of options, including taking a full pension annuity or taking an increased or decreased income from the Drawdown fund. This does not apply if you select a drawdown contract that gives you a guaranteed maturity value in exchange for a fixed term.

Even if you don’t want to take full GAD as an income, you could consider taking full GAD and using any surplus monthly income to put into another personal pension. The advantage of this is that a personal pension is more tax efficient if you should die while it is still in place and you have the potential to take another Tax Free Cash lump sum from it.

If you die while the drawdown contract is in place, the fund will form part of your estate and will pass to your family. With an Annuity, the fund is lost. This may be mitigated to a degree if an annuity with a guaranteed pension or partner’s pension is selected. Depending on how your family use the fund, it may be liable to tax at 55%.

 


Risks

It should be remembered that all financial investment transactions carry various degrees of risk and it is important that you are aware of them. You should only proceed with the transaction if you understand the risks and are happy with them.

The following represent the key risks :

A pension fund is obviously intended to be used to provide money in your retirement. If you are taking money from your pension fund before retirement you may seriously erode any income you could expect to receive in retirement. For this reason some drawdown providers will not accept drawdown business if the fund is below a certain amount.

The fund in your drawdown contract is subject to investment market fluctuations. If the funds you select do not perform you could find that your fund has shrunk rather than grown. This again could have a negative impact on your retirement income.

There is a possibility that if you deplete the fund too quickly you could run out of money in retirement.

If you were to die before you converted the drawdown into an annuity, then the fund would pass to your estate. If your partner wanted to take the fund as a lump sum it would be taxed at 55%.

Your existing pension may have some guarantees built in that you may lose if you transfer into a drawdown contract. You should check this, or authorise us to check on your behalf, before completing the switch.

Pension legislation keeps on changing. We have previously seen legislation introduced in 2006 and 2011. Both of these government bills had both positive and negative impacts on income drawdown. At any future point in time a government may again legislate on income drawdown and that legislation may impact negatively upon your plans.


The purpose of these notes is not to turn you away from a drawdown solution, but to make you fully aware of all the implications before you make an irreversible decision.

Drawdown can be an excellent solution for many people, and we have many clients on our books who have used it to make a major impact on their lives.

It is not however an ideal solution for everybody and you must ensure you fully understand all the risks before taking an irreversible decision. If in any doubt whatsoever we strongly recommend you seek financial advice.

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