MSE News: Over-55s get green light to use their pension like a bank account

bmm78

Important point to stress (and I know others have already done so) is that Uncrystallised Fund Pension Lump Sums (UFPLS or "Pension Bank Accounts") are an alternative option to Flexi-Access Drawdown, not a replacement.

Drawdown remains a more flexible and tax-efficient option, particularly for those who expect to be in a lower tax band in retirement, and/or wish to continue contributing to their pension.

kidmugsy

zagfles wrote: »

Have the press misreported this? A lot of people seem to be making the same mistake, that the "UCFPLS" replaces the normal drawdown rules rather that simply being another option.

Some people at MSE clearly are unable to distinguish "you will be able to" from "you will be compelled to". Blaming everything on the child-journalists isn't very accurate.

buglawton

greenglide wrote: »

Nothing has really changed.

It is your choice whether to crystallise all (or part of) your pot. You can then either withdraw the whole amount just crystallised with 25% tax free and the rest taxed or you can just take the 25% tax free and leave the rest crystallised or any situation in between.

So what, exactly, is "horrible"?

That the real motive of this legislation is to draw in a tax cash pile from gullible people.

You are now stuck between a rock - allow the fund managers to continue leaching fees & mismananging your money, and a hard place - donate nearly half your money to the taxman in search of a more tangible 'investment'.

dunstonh

Now the first 25% of any withdrawal will be tax free, the remainder taxed at one's marginal rate.

No different to before.

greenglide

buglawton wrote: »

That the real motive of this legislation is to draw in a tax cash pile from gullible people.

You are now stuck between a rock - allow the fund managers to continue leaching fees & mismananging your money, and a hard place - donate nearly half your money to the taxman in search of a more tangible 'investment'.

The real motive, presumably, is to persuade the public that the government is changing something that they haven't really changed. Coincidence that a election looming?

What makes you think that fund managers are "leaching fees & mismananging your money" - is it not whoever that manages the funds that have accumulated the money in the first place? You can always invest in low cost funds.

mgdavid

buglawton wrote: »

That the real motive of this legislation is to draw in a tax cash pile from gullible people.

You are now stuck between a rock - allow the fund managers to continue leaching fees & mismananging your money, and a hard place - donate nearly half your money to the taxman in search of a more tangible 'investment'.

as somebody else said the other day, utter tosh! Nothing that exists today is being scrapped, only new options made available. As long as the money remains in a pension wrapper (e.g. SIPP) it is protected from tax. Manage your own money and investments. Pay normal PAYE tax rates when you draw it out just like you have done all your working life.

jamesd

buglawton wrote: »

allow the fund managers to continue leaching fees & mismananging your money

It is not necessary to use any fund managers in a pension. it is not necessary to use any fund managers in a Stocks and Shares ISA. You're perfectly free to hold shares or bonds of your own choice in them if you prefer. If you happen to have a workplace or personal pension plan that doesn't offer this option, just transfer to one of the many that do.

SnowMan

bmm78 wrote: »

Important point to stress (and I know others have already done so) is that Uncrystallised Fund Pension Lump Sums (UFPLS or "Pension Bank Accounts") are an alternative option to Flexi-Access Drawdown, not a replacement.

Drawdown remains a more flexible and tax-efficient option, particularly for those who expect to be in a lower tax band in retirement, and/or wish to continue contributing to their pension.

The tax efficiency issues are worth exploring. As you say there may be many scenarios where drawdown is the more tax efficient option.

But could there be some scenarios where the UFPLS is the more tax efficient option?

Consider somebody with £40,000 in money purchase pension savings, taking early retirement in the tax year after they finish employment, who wants to take out a £10,000 lump sum now.

Under UFPLS, £2,500 (25% of the lump sum is tax free) and the remaining 75% will be taxed as pension income in that tax year.

Under flexible access drawdown then to access the £10,000 lump sum, the whole of the £40,000 of funds would have to be placed into drawdown, and then the balance of £30,000 after the tax free lump sum is taken would be taxed as pension income in the tax years when it is eventually paid out.

For someone with no other taxable income in the year when the £10,000 lump sum is paid, on the surface it might be beneficial to go the UCFPLS route. They will pay no tax on the lump sum through either route. But they will still have 'unused' tax free lump sum of £7,500 (= 30000 x 0.25) if they go the UCFPLS route for use in later years when income may exceed the personal allowance. But there will be no 'unused' tax free lump sum under the drawdown route.

Am I missing something there? In particular is there a route to achieve the same effect through flexible access drawdown, for example by delaying paying the lump sum?

The other issue with UFPLS is that it may be more widely available than drawdown (?), and so as long as drawdown is not more tax efficient, then UFLPLS may be easier to implement as a way for some people to get cash towards the lamborghini in many cases.

Discuss

jem16

SnowMan wrote: »

Am I missing something there? In particular is there a route to achieve the same effect through flexible access drawdown, for example by delaying paying the lump sum

Phased drawdown already exists and does exactly what you describe.

SnowMan

jem16 wrote: »

Phased drawdown already exists and does exactly what you describe.

Phased drawdown gets you back to the same position as UFPLS. That is, in the example, if you put £10,000 into drawdown take the 25% tax free cash and immediately take the 75% balance, with the balance of £30,000 uncrystallised to be put into drawdown later.

However if you are going to do this you might as well go for UFPLS, as that is essentially what this phased drawdown achieves?