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Flexi Access Drawdown, UFPLS (Uncrystallised Funds Pension Lump Sum), Small Pots and TAX!

⏰
0:00 - Introduction
0:52 - Flexi Access Drawdown
1:47 - MPAA (Money Purchase Annual Allowance)
2:13 - UFPLS (Uncrystallised Funds Pension Lump Sum)
3:39 - UFPLS Tax Example
4:08 - Which Tax Calculator
4:53 - Emergency Tax Explained and Example
5:33 - Prudential Emergency Tax Calculator
5:55 - Small Pots
7:09 - Key Benefits of UFPLS
7:36 - Small Pots Tax Example

With the introduction of new rules back in April 2015 it meant that you now have greater flexibility around how you can take your private pension plan. In this video we’ll look very specifically at Flexi Access Drawdown, UFPLS which means uncrystallised funds pension lump sum and small lump sum (small pots)

And we’ll have a think about the tax position of these various options.

Taking taxable income is likely to have an impact on how other sources of income are taxed. So you need to think about how much you want to withdraw and how that withdrawal will be taxed!
Pension flexibility, introduced in April 2015, provides those wishing to access their pension funds with a wide choice of vesting options. But which option do they select?

Obviously this is a decision that has to be thought through carefully and hopefully this will provide some clarity on those options.

Using flexi-access drawdown, a pension holder can crystallise their pension fund, usually taking up to 25% of it as a Pension Commencement Lump Sum (PCLS) while the balance of the money continues to be invested. These are then known as crystallised funds.
A pension holder can then choose to draw as much or as little of the crystallised fund as they desire.

Withdrawals can be taken as a regular income stream, or one or more lump sums.
These withdrawals can be provided directly from the pension fund. Income tax will be chargeable on any withdrawals, at the pension holder’s marginal rate in the year of withdrawal.
Although it’s very important to note that emergency tax may be applied to lump sums or the initial payments of income.

Receiving withdrawal payments from a flexi-access drawdown account, is a trigger event for the MPAA (Money Purchase Annual Allowance). As such, any ongoing pension contributions will be tested against the MPAA. And the MPAA is a reduction in the annual allowance from £40,000 to £4,000. It’s important to bear that in mind if there is a possibility that you would look to fund a pension plan in the future.

UFPLS very simply is a way of taking cash lump sums from a pension without purchasing a product. 25% of the UFPLS is normally tax free and the rest is taxed at marginal rate.
Importantly, with this, emergency tax will normally apply to the first payment and we’ll look at an example of this. So this is used where someone does not want to use or designate funds to drawdown and they don’t wish to buy an annuity.

The Government wanted people to have greater flexibility in retirement benefit choice. They did not want people to feel forced into taking pension income products and be able to easily access funds as lump sums.

With the theory that this greater flexibility may encourage more people to save for retirement. A sceptic might suggest that there would have possibly been a bit of a tax windfall from the pension withdrawals for the government…

📖References & Links

Prudential Emergency Tax Tool
https://www.pru.co.uk/tools-calculato...

Which Lump Sum Pension Withdrawal tool
https://www.which.co.uk/money/pension...

🗒 Please note:

The information provided is based on the current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on my understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances.

This channel is for information and education purposes only. Any information or guidance given does not act as financial advice. Please consult a financial adviser if you are unsure in anyway.

Keep in mind that the value of your investments can go down as well as up, so you could get back less than you invest.


⭐ My aim is to provide education and guidance to help individuals understand pensions, investments and protection.

#drawdown #ufpls #retirementplanninguk