Two different types of Drawdown?

Moby

Can someone confirm the difference between UFPLS and Flexible Drawdown. I'm still lost on this. Is it simply how you take the 25% tax free bit?

mgdavid

I'll try, but I only know what this site has taught me !

with flexible (flexi?) drawdown, 25% of the whole lot is taken up front as a PCLS, then drawdown amounts are taken whenever required, amount, period and frequency are totally flexible , the DD is taxed as normal income. The whole fund is crystallised up front.

With UFPLS, the fund is split into different sections (tranches) and only crystallised when needed; i.e. if the fund is £100k then to start, £20k might be crystallised, £5k taken as a taxfree LS, and £15k drawdown. The £890k remains uncrystallised.
Later on, another £20k can be crystallised, another £5k taxfree LS taken and £15k as taxable drawdown.
And so on.

AIUI.
E&OE.

Now we need one of the pros to explain why UFPLS might be advantageous...

gterr

mgdavid wrote: »

Now we need one of the pros to explain why UFPLS might be advantageous...

Not a pro, but something I've been pondering fits in here. Please do correct me if I'm wrong:


With UFPLS the 25% tax free amount is calculated on just the portion of the pension you take at that time (Day 1). The remaining fund grows over time (hopefully) so there is scope for the 25% tax free amount also to grow. If you make a series of UFPLS withdrawals over the years until the pot's exhausted, and assuming investments grow over time, then the TOTAL amount that can be taken as the 25% tax free is likely to be higher than if you took it based on the Day 1 value of your pot.


With Flexi-drawdown, if you take the entire 25% tax free amount from the whole fund on Day 1 then that's it: the rest of your pot in DD will hopefully grow if left invested, but you can't then take any more by way of the 25% tax free lump sum.
Partial DD gives you the best of both worlds, perhaps?


In my situation I'll be wanting to take one single lump sum per year out of my SIPP and I can't see there's any advantage of Partial DD over UFPLS in that case. Please set me straight if I'm wrong.

mgdavid

Yes I think you are right but would accentuate your 'hopefully'. Markets can go down as well as up, and all that. There can be a 'bird in the hand...' attitude to taking the whole 25% up front.
Personally I spent most of mine on a new motorhome but if the cash is not needed then the options are more open.

coyrls

gterr wrote: »

Not a pro, but something I've been pondering fits in here. Please do correct me if I'm wrong:


With UFPLS the 25% tax free amount is calculated on just the portion of the pension you take at that time (Day 1). The remaining fund grows over time (hopefully) so there is scope for the 25% tax free amount also to grow. If you make a series of UFPLS withdrawals over the years until the pot's exhausted, and assuming investments grow over time, then the TOTAL amount that can be taken as the 25% tax free is likely to be higher than if you took it based on the Day 1 value of your pot.


With Flexi-drawdown, if you take the entire 25% tax free amount from the whole fund on Day 1 then that's it: the rest of your pot in DD will hopefully grow if left invested, but you can't then take any more by way of the 25% tax free lump sum.
Partial DD gives you the best of both worlds, perhaps?


In my situation I'll be wanting to take one single lump sum per year out of my SIPP and I can't see there's any advantage of Partial DD over UFPLS in that case. Please set me straight if I'm wrong.

As has been pointed out on other threads, you can phase your crystallisation using Flexi Drawdown, to achieve the same thing as UFPLS, (a series of payments with 25% tax free in each payment). I think UFPLS has been invented for the convenience of pension providers who do not want to offer Flexi Drawdown, rather than for consumers.

gterr

coyrls wrote: »

As has been pointed out on other threads, you can phase your crystallisation using Flexi Drawdown, to achieve the same thing as UFPLS, (a series of payments with 25% tax free in each payment). I think UFPLS has been invented for the convenience of pension providers who do not want to offer Flexi Drawdown, rather than for consumers.

Sure, yes. That's what I was referring to by 'Partial Drawdown'. It's just that I'm struggling to see - in my case where I want to take one single lump sum per year - that there's any advantage to DD over UFPLS. I'm with HL and there's no specific charge for either option, but with some platforms there might be different charges depending which method you choose?

EdGasket

I'm still confused by the options having tried to understand it for some time. There's flexi-access drawdown and UFPLS, then there's crystalised and uncrystalised parts of the fund, then there's limits on what you can then pay in either £40K, £10K, or even just £3.6K. Then of course one might have to consider how much the pension provider is charging to allow you to take each option.

EdGasket

gterr wrote: »

I'm with HL and there's no specific charge for either option, but with some platforms there might be different charges depending which method you choose?

You sure about that? AJ Bell are charging £100 per year plus amounts ranging from £25 to £75 per withdrawal. Plus a fee for putting a tranche into drawdown whatever that means.

coyrls

gterr wrote: »

Sure, yes. That's what I was referring to by 'Partial Drawdown'. It's just that I'm struggling to see - in my case where I want to take one single lump sum per year - that there's any advantage to DD over UFPLS. I'm with HL and there's no specific charge for either option, but with some platforms there might be different charges depending which method you choose?

I guess you have additional flexibility on the makeup of your withdrawals with DD. With UFPLS you are always taking your withdrawal as 25% tax free 75% taxable. With DD you can play with that ratio (e.g. for tax efficiency), for example with DD you could crystalise £100,000 and withdraw £50,000 with 50% of the £50,000 being tax free, leaving the remaining £50,000 crystalised but not withdrawn.

EdGasket

Whats the difference between crystalised and uncrystalised please? Can either be left in the pension fund and invested?