A phased retirement plan works by dividing your pension pot into a number of segments. These are then treated as lots of little schemes, each offering tax free cash as well as annuity incomes, which you can draw upon at different stages.
The plus points
The benefits of phasing in your retirement benefits, is it enables you to build up your lifetime income gradually. This is particularly useful if you aren’t going to stop work altogether but are intending to wind down to retirement by taking a lower paid, or part-time position, something which is becoming increasingly common as an alternative to stopping work entirely.
The pitfalls
Make sure you are clear on all the additional costs associated with setting up and drawing multiple smaller-pensions. The extra administration involved with phased retirement schemes will ultimately cost more. You must also be aware that leaving funds invested may not work if investment growth is poor or if interest rates move in the wrong direction. You could end up with a lower income overall.
