| Pension
Fund Withdrawal (PFW) was brought in by the Finance
Act 1995 to give people in personal pension schemes
the option of deferring their annuity purchase until
the age of 75. However, in the years since PFW was launched,
people considering this route have also been attracted
to the other benefits that it offers. These include
investment flexibility and tax planning.
Are you suitable?
PFW is not appropriate for everyone. It's really
only suitable for a small proportion of retirees who
have accumulated above-average funds and who are not
reliant solely on their PFW income to support them
through their retirement. Generally, if you are a
high net worth individual between the ages of 50 and
65 and are prepared to take investment risks and decisions,
then PFW could be an option to consider.
SIPP benefits
The case for PFW to be used as part of a self-invested
personal pension (SIPP) cannot be better illustrated
than by looking at the UK and global market situation
today and comparing current annuity levels with those
when PFW was launched.
What is important is that at every review the spread
and mix of investments are examined to ensure that
they are meeting and performing against the yield
requirements which will support the income and protect
the fund for a future annuity purchase. The latter
is particularly important as you move towards your
targeted annuity purchase date, or the age 75 barrier.
Phased retirement
There are four crucial differences between phased
retirement and PFW:
- Under phased retirement, all or part of the fund
can, at any stage, be transferred to a PFW investment.
However, once transferred, the only other option
is to purchase an annuity.
- With phased retirement, the tax-free cash is paid
gradually over a period of time and is normally
used to supplement income, whereas the tax-free
cash from a PFW investment has to be taken at the
outset or not at all.
- Additional contributions to a phased retirement
scheme can be made to non-vested segments providing
you are in receipt of net relevant earnings from
employment.
- With phased retirement, the death benefit is usually
the return of the gross fund with no liability to
inheritance tax (unless the funds are derived from
an occupational scheme transfer).
There are many advantages to this chosen course.
For example, the phased retirement pension fund can
be transferred to another provider at any time. Phased
retirement plans may require periodical encashment
of some of the funds to provide income.
Phased retirement is not suitable for all and, perhaps
not surprisingly, has a similar user profile to that
of PFW.
To find out whether PFW or phased retirement provision
could be appropriate to your situation, please e-mail
or contact us to arrange a meeting.
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