Cluster Policy
A cluster policy is a term dreamed up by the Inland Revenue to describe a policy ( life assurance or pension perhaps) which is in fact a series or "cluster" of individual contracts.
In other words you could be paying £200 a month into a pension plan with XYZ Life but in fact what you have is ten clusters of £20 each. Each part of the policy or cluster is treated independently for tax and administration purposes.
The claimed attraction of a cluster policy is that it allows greater flexibility.
- Each of the individual contracts may be transferred separately into a personal pension scheme and then used to create pension benefits.
- At retirement you could, in theory, decide to 'cash in' only some of your clusters. In that way you could phase your retirement which could be beneficial for your circumstances.