What is phased retirement and how does it work with a private pension?

Full answer

**What is phased retirement?** Phased retirement (also called phased drawdown or phased crystallisation) involves accessing your pension pot in stages rather than all at once. Each time you crystallise a segment of your pension: - You can take 25% of that segment as a Pension Commencement Lump Sum (PCLS) — tax-free - The remainder goes into drawdown (or is used to buy an annuity), taxed as income when withdrawn **The benefit: control over tax** By taking only what you need each year, you keep taxable pension withdrawals within lower tax bands and preserve the rest for continued growth. This is more tax-efficient than taking the whole pot at once. **Example: David, phasing retirement from 57 to 65** David has a £400,000 pension at 57. He wants to work 3 days/week, earning £25,000 salary. - Year 1: crystallises £80,000 segment; takes £20,000 PCLS (tax-free); draws £15,000 taxable income - Total income: £25,000 salary + £15,000 pension = £40,000 (in basic-rate band) - Tax: (£40,000 − £12,570) × 20% = £5,486 - Leaves £320,000 still invested, continuing to grow Compared to taking entire £400,000 at once: £100,000 PCLS tax-free, then £300,000 − £12,570 personal allowance = £287,430 taxable income at 20/40/45% = ~£100,000+ tax. **Access age** Currently age 55; rising to 57 in April 2028 (with exceptions for some public sector scheme members and those with existing lower protected ages). **Annual Allowance after crystallisation** Once you start drawdown (flexibly accessing income), the Money Purchase Annual Allowance (MPAA) applies: £10,000/year limit on further pension contributions. This matters if you are still working and making contributions.

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