IHTM17106 - Pensions: other provisions: phased retirement plans

The Inheritance Tax (IHT) treatment of these types of cases is similar to that for income drawdown (IHTM17502). An individual can have increased flexibility by taking benefits from different arrangements at different times between the ages of 50 and 75 and phase their retirement. This ability to phase retirement led to the concept of staggered vesting to meet the individual’s income needs from year to year, by taking a combination of tax-free cash and pension from sufficient arrangements each year. Staggered vesting can be made available to those who transfer from retirement annuities (IHTM17024) or some form of occupational scheme (IHTM17022) to a personal pension plan (IHTM17023).

On the member’s death before age 75 the arrangements that have not been used to purchase tax-free cash and pension benefits are available to the member’s dependants. IHT can be avoided by making these funds available through discretionary distribution.

As with income drawdown taking phased retirement is a ‘change in benefits’ which should be reported by the taxpayer or agent on form IHT409 if made within 2 years of the deceased’s death. If you become aware of a case where the deceased had a phased retirement plan you should refer the file to Technical for advice.