Phased retirement is a personal pension plan which accepts existing funds and allows you to buy an annuity or income drawdown in stages rather than all at once.

Each year you decide how much income you need. You then cash in as much of the plan as necessary to provide your chosen level of income.

Please note that the value of the remaining fund can go down as well as up and is not guaranteed, and that annuity rates can vary over time. So you could end up with a lower pension than if you'd chosen a conventional annuity straight away.

You can take out a phased retirement plan any time after the age of 55.

How does it work?
Think of it as lots of mini-retirements spread out over a number of years. At first your income will consist of a tax-free cash sum and income from either an annuity or an Income Drawdown plan. You'll continue to receive income from these sources, but you also have the option to take another tax cash-free sum and set up further Income Drawdown plans or annuities.

Phased retirement can work like this:

Income drawdown plus tax-free cash - to a maximum of 25% of the value of the arrangements you're cashing in.

Meanwhile, the 'arrangements' left in your plan, called 'deferred arrangements' continue to be invested.

The value of the investment can go down as well as up and you may not get back as much as you put in.