When the retirement age was first set at 65, no one person anticipated us to live as long as we do. In accordance with the Government?s Actuarial Department, for a child born in 1901, life expectancy was 57 for women and 50 for men. In 2007, the same statistics propose it?s currently over 90 for women and 86 for men (source: life tables, 2004, cohort figures). This has played havoc with the pensions system and the next generation of retirees won?t have access to the generous outlined benefit schemes that have been supporting the UK?s current pensioners. For many of us, it will demand us working much longer and making some important decisions as we confront our own retirement date.
Phased retirement is essentially a sequence of mini-retirements that can help some individuals through the change from work to no work. Your pension fund is split into many smaller, identical segments and, instead of retiring everything at one time, you retire ?in parts?. This means you start out on a lower income, maybe retiring only one or a few segments of your total investment and then increase this every year as you retire more of what remains. Finally, when you?ve finished working entirely or your circumstances requires you to take the maximum income you can get, you complete the phasing and retire the final parts.
On top of building your income over the course of time, phased retirement has a considerable number of other advantages: For instance, the money you are not using right away is left invested and therefore has the potential to grow further, depending on market conditions. You also benefit from what should in an ideal world, be improving annuity rates as you grow older, meaning later retirements should buy more income than the early ones. Finally, it will also help to protect the amount available to your loved ones in the event of your death, if this is sooner than anticipated or you have not divested the complete amount.
One other option that must be taken into consideration when making plans for your retirement however, is that of taking an early pension lump sum. Many individuals dream of taking long holidays and spending more time with friends and family and whilst a phased retirement definitely can help in the transition from being employed to retirement; this won?t help you realise your life?s dreams in the way a lump sum could. Actually if you are over 55 you could release up to 25% of your complete allowance amount tax free.
When contemplating your options with reference to which pension course to take; there is no one rule suits all, and so it?s very important that you consider the pros and cons of each option, prior to making any last decision. You only get to retire once, and it is thus practical to take into consideration all the options so that you can make the appropriate decision.
Info thanks to Adviser Hub. We do advise that before you take any action with reference to purchasing an unsecured pension or taking an early pension release that you carry out a full pension review with aid from a certified pensions adviser.
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