IHTM17110 - IHT claims on retirement benefits: phased retirement plans

The IHT treatment of these types of cases is similar to that for Income Drawdown ( IHTM17101). An individual can have increased flexibility by taking benefits from different arrangements at different times between the ages of 50 and 75 and thus phasing retirement. This ability to phase retirement led to the concept of staggered vesting so as to meet the individuals 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 ( IHTM17023) or some form of occupational scheme ( IHTM17021) to a personal pension plan ( IHTM17022).

On the member’s death before age 75 then the arrangements that have not been used to purchase tax free cash and pension benefits are available to the dependants of the member. 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 parties at question 3 on the form IHT409 ( IHTM10035) 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 TG at IHT Edinburgh for advice.