Retirement and beyond

Frequently asked questions

Is phased retirement right for me?

Phased retirement can be taken out by people aged between 50 and 70 (from 2010 the minimum age will be 55). It could be suitable for you if:

you're planning to wind down your workload gradually
you've other sources of income in retirement so you don't need such a high income from your pension fund in the early years of your retirement
you want the flexibility of being able to change your income to suit your circumstances
you want the control and choice of a self-investment option
you want your pension to keep benefiting from any investment growth and you can accept the risk that its value may fall rather than rise
you want to attempt to maximise the benefits your family receive on your death and give them a choice about how they get these benefits

What is an AEGON Scottish Equitable Phased Retirement Plan?

It's a means of allowing you to take an income from your pension fund without buying an annuity. The plan is split into segments and you decide when you cash these in. When you cash them in, you can take a portion as tax-free cash, and either invest the balance in income drawdown or buy an annuity with it. The segments that you haven't cashed in stay invested so you can benefit from any investment returns.

By cashing in your segments and putting the balance after tax-free cash into income drawdown, you can delay buying an annuity until you reach age 75 (or later, if you transfer into alternatively secured pension). You decide how much income you take each year, subject to the Government limit, which the Government Actuary's Department (GAD) sets. The maximum GAD limit is 120% of the yearly pension that GAD decides someone in good health could get from an annuity bought on the open market.

Is there a minimum investment?

The minimum investment for an AEGON Scottish Equitable Phased Retirement Plan is £50,000. Where we receive both protected rights and non-protected rights transfers, the total must exceed this level.

You can make additional single or transfer contributions but the minimum contribution is £499.

How much income can I take?

The income you can take from your Phased Retirement Plan will depend on whether you use the balance of the money you receive after tax-free cash to buy an annuity or invest in income drawdown. If you choose an annuity, your income will depend on several factors such as your age, health and annuity rates at the time.

If you choose to invest your cashed-in segments (minus tax-free cash) into our income drawdown plan, the Retirement Cash Account, we'll calculate the maximum income available to you at the start of your plan and let you know your limit. Every five years after that we'll re-calculate the maximum income you can take and let you know what that is. The amount you can take depends on many factors including investment performance, annuity rates and how much income you've previously withdrawn.

The maximum income you can receive is 120% of the yearly pension that GAD decides someone in good health could get from an annuity bought on the open market. It's up to you how much income you take, subject to it being within the maximum limit set by GAD. Of course, if you're lucky enough to have income from other sources, you don't have to take an income from your fund, leaving all of it to benefit from any investment growth.

Every year we send you an annual review pack, as well as sending a copy to your financial adviser. You'll then need to check that your plan can still meet your income needs and that it's still invested in suitable funds, particularly if your circumstances have changed. We always recommend that you speak to your financial adviser about any decisions you make regarding retirement income or your plan.

Is the plan flexible?

Very.

You decide how much income you want to take. You can do this by cashing in your required number of segments to get your tax-free cash. With the balance, you can either buy an annuity or invest in income drawdown. You must use the rest of your plan to buy an annuity by the age of 75 or transfer into an alternatively secured pension at age 75.

You can transfer the remaining value of your plan to another pension provider before age 75.

If you want, you can make further payments into your AEGON Scottish Equitable Phased Retirement Plan, as long as we agree to this and it's within Revenue limits. Any lump sum payments you make to your plan will qualify for tax relief.

Where can I invest my fund?

You can choose the funds to suit your individual investment strategy and needs. We offer a wide range of internal funds - unit-linked and with-profits.

You can also choose to access our increasingly popular self-investment option. This gives you greater control over the spread of your investment as well as access to over 1,200 funds, including:

stocks and shares, both in the UK and overseas
unit and investment trusts
discretionary fund managers
insurance company-managed and unit-linked funds
specialist property solutions

Because of the range of funds on offer, we always recommend that you consult your financial adviser to determine which ones might meet your individual needs and your attitude to investment risk.

You can switch in and out of various funds to change your mix of investments, although there may be certain conditions for doing so. For example, because of the nature of property investments, we can delay any switch requests if market conditions require. This is because investments in property and land may not sell straight away so you may not be able to sell your investment when you want to.

What will happen to my plan if I die?

The remaining value of your plan will be used to provide a lump sum payment, or a spouse's or dependant's pension or pensions. Normally no inheritance tax is payable on this value, although any spouse's or dependant's pension will be treated as earned income, and taxed when it's paid.

If you've arranged your plan under an individual trust, we'll pay any lump sum benefit to the trustees, who then decide who receives the benefits. Otherwise, we'll decide who the benefits are paid to. You can tell us who you wish to benefit, and how, by completing a nomination form.

If you've already used part of your plan value to buy an annuity or annuities, any death benefits available from the annuity or annuities will depend on the terms agreed with the annuity provider(s). You might have to pay inheritance tax on any remaining instalments of your annuity or annuities.

If you've previously used part of your plan value to provide income drawdown, we'll pay any remaining fund to your chosen financial dependants. They can either:

buy an annuity with any remaining fund
take any remaining fund as cash, although this will be taxed at a rate of 35% (if this amount exceeds your available lifetime allowance, the amount above this will be taxed at 55%).
continue to take income until their 75th birthday, when they must buy an annuity with the remaining fund or, from age 75, transfer the remaining fund to an alternatively secured pension

If your spouse or partner dies while taking income withdrawals, any lump sum paid from the remaining fund will be taxed at 35%.

If you don't have any dependants, we'll pay the remaining fund to your estate, minus 35% tax.

What are the charges?

We'll show the plan charges in your personal illustration, which also shows the effect these charges may have on the value of your plan. You can use this to compare our charges with those of other pension providers. You can also compare the income you might receive from your AEGON Scottish Equitable Phased Retirement Plan with the income that you might get from other plans. If you've chosen our self-investment option, Capita SIP Services, which provides the day-to-day administration for that option, will deduct its charges from your self-invested assets.

What are the drawbacks?

The main drawback of phased retirement compared with the conventional annuity route is the greater degree of risk. For example:

Your income isn't guaranteed - it depends on investment returns and future annuity rates. If the stock market falls, you may end up with less income than if you'd chosen the traditional annuity route.
The value of your plan may reduce with the withdrawals you make and future investment returns are unknown. So it's important to regularly review it to make sure you aren't withdrawing too much. On the plus side, if investment returns are good, you can take withdrawals and what remains in your plan will still grow.
Annuity rates vary over time. If you leave it until the last moment to convert your plan into an annuity, you'll have to accept the rates available at the time. Again though, if there have been good investment returns, the total fund you have available to buy an annuity with may have grown.
The charges you pay for phased retirement may be higher than for a conventional annuity.

Your financial adviser can explain the options available.

If you buy an annuity as part of your Phased Retirement Plan, you normally convert the value of your pension into a secured income. Because of the assumptions annuity providers make about life expectancy, you may benefit from 'pooling' the value of your pension with those of other individuals (this is often referred to as mortality gain). Once bought, you can't normally change the terms of your annuity.

Your financial adviser can assess your attitude to investment risk, as well as your income requirements, to help you decide if our Phased Retirement Plan is suitable for you.

What other options are there for retirement income?

Income drawdown

Income drawdown allows you to take a tax-free lump sum immediately and leave the balance of your fund invested. You can then take a taxable income from your fund until you're ready to buy an annuity. You must use the remaining value of your plan to buy an annuity by age 75 or transfer to an alternatively secured pension at age 75. Our income drawdown plan, the Retirement Cash Account, has many of the flexible benefits of phased retirement, and you can combine them. You should speak to a financial adviser about this option.

Annuities

An annuity is a regular guaranteed income paid for the rest of your life that you buy with some or all of your pension fund. Once set up, it will pay you the same amount of money each year, which can help you plan for the future as you know exactly how much you'll have each year. But it may not always offer you the flexibility you need.