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It is possible to take the best bits of both the Phased Retirement and Drawdown products, namely the spreading of your tax free cash over time and the deferral of buying an annuity and combine these into one retirement policy. This is known as Phased Drawdown.
A Phased Drawdown policy is aimed at those individuals who do not need their tax free cash upfront nor do they want to buy an annuity.
We calculate the most efficient method of providing you with the income you require - paying particular attention to taxation. We would also discuss in detail the critical yield and your attitude to risk both of which are fundamental to the success of any Drawdown policy.
Each time you elect to receive some tax free cash, whether as part of a monthly income or a one off amount, the residual fund associated with that section of tax free cash moves from your unvested Personal Pension into your Phased Retirement policy. GAD limits apply to the balance of the residual fund and you will receive a regular income - monthly, quarterly or even annually.
The latter can be used as a tax planning exercise if careful consideration is given because it is possible to receive the first taxed income from your Pension 364 days after you received the tax free cash - in other words one year later (less a day). In the early years you may be able to reduce your earned income from a higher rate tax payer to a basic rate tax payer, or if you are a basic rate tax payer it may be possible to reduced your earned income so that you are not a tax payer at all.
This gives you the opportunity to disinvest other investments that you might have in as tax efficient manner as possible.
Quite simply, Phased Drawdown offers the best of both worlds. In particular, you can:
- Use your tax free cash depending on what you need it for, i.e., a lump sum or tax free income or a bit of both.
- Delay the purchase of an annuity until you are 75. Not only might you get a better annuity rate but you can defer your decision on the protection you need until then, by which time you will probably have a far better idea of what protection you really need.
- Take advantage of the return of fund death benefit under a Phased Retirement policy, rather than the Drawdown policy which whilst giving the option for a lump sum to be paid (an advantage in itself over an annuity), does get taxed at 35%.
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