Description

A Personal Pension written as a multiple (usually 1.000) of individual policies (or "segments"). Blocks of policies are then used as required.

Examples of Use

Customers with individual pension funds who:

• Require some income but do not require the full amount available.
• Do not need the maximum cash lump sum immediately.
• Wish to defer applying the whole of the fund (after cash) to purchase an annuity because they consider that rates are too low.
• Wish to defer purchasing a full annuity, or at least spouse reversion or guarantees, until a later date in case of early death or other changed circumstances.
• Want to preserve the death benefit on remaining funds as unvested segments can be in trust and completely tax free.
• Expect to be able to achieve investment growth by retaining control of the unvested funds.

Advantages

• Gives good control of income as more segments can be used as and when required, if at all (up to age 75). 
• The tax free cash on vesting segments will boost the income for the current year.
• Continued mostly tax exempt growth of funds not yet used for annuity purchase.
• Avoids applying all of funds at time of low annuity rates.
• Defers the need to purchase spouse’s pension) unnecessarily in case spouse predeceases policyholder.
• On death any unvested segments available as return of fund without tax (compared with 35% in Drawdown).
• Full trust protection and Inheritance Tax avoidance usually applies to unvested segments.

Disadvantages

• Cash lump sum only available in stages as segments are vested.
• Complex planning and review process, especially when combined with drawdown.
• Segments vested into annuities are on fixed terms, therefore also see OMO disadvantages.

Points of Interest

• A detailed illustration will be required. This must reflect the specified income requirement pattern.
• Provision must be in place for regular reviews, at least annually, of income requirement, annuity rates and fund links.
• Health of customer and spouse, including family history of longevity, will have major influence on choices
• Professional advice should be sought to review the options of income withdrawal, with profit, unitised and guaranteed annuities. This is a very complex area.