Moving pension to Uncrystallised Funds Pension Lump Sum (UFPLS)

thiswayupuk

My mother has reached retirement age and one of her smaller pots she would like to take the lump sum option of withdrawing 25% / Uncrystallised Funds Pension Lump Sum (UFPLS) each year for the next few years. The current provider doesnt offer this option.

I am currently investing moving it to Hargreaves and Lansdown plus Aegon. Has anyone moved over to another provider with low fees and can they recommend some companies/products to look at?

dunstonh

Has anyone moved over to another provider with low fees and can they recommend some companies/products to look at?

That is a regulated activity. So, not allowed. However, even if it was allowed, it is not a question that can be answered on so little info. People look for different things in their investments and features/options.

HL is good and efficient but expensive. Aegon are not well priced for an insurer but then most insurers dont offer direct to public. or if they do, they charge more than the IFA option. If you use an IFA you get the cheaper product but then you have to pay the IFA. So, if you are going to DIY, you are usually better off using a dedicated DIY option.

jamesd

There are two broad ways to take money:

1. UFPLS. This is always 25% tax free lump sum and 75% taxable lump sum.
2. Drawdown. Up to 25% tax free lump sum (always do 25%) and then any amount you like taxable.

In both cases you don't need to take it all. An example of what can be done includes things like:

A. start with £$100,000 pot.
B. Place £20,000 into dradown, taking a 25% tax free lump sum of £5,000 and leaving £15,000 in a drawdown pot. Still hae £80,000 uncrystallised from which a tax free lump sum can be taken later.
C. Take £10,000 UFPLS from the £80,000 leaving £70,000 uncrystallised. £2,500 of the UFPLS is tax free, £7,500 is taxable.
D. Take £2,000 from the £15,000 drawdown pot in B and set up a regular payment of £1,000 a month.
E. Take a 25% tax free lump sum from the £70,000 uncrystallised pot and increase the regular monthly payment from £1,000 to £2,000.

Knowing how much money is involved and having some idea of which investments to use helps to know what places to suggest. HL is quite inexpensive for lower amounts but gradually gets more expensive as the amount involved increases. Knowing roughly how many years might elapse before she takes it all out, if she plans to do that, would also be helpful.

It would also be useful to know how old she is, since retirement age can be just about any age. First guess is state pension age and it's important there to know whether she reached it before 6 April 2016 or from then.

zagfles

Are you happy to choose your own investments? What do you want the pension invested in? Funds, cash, shares? What amount?

HL are cheap for smallish amounts eg a few tens of thousands in funds. For larger amounts they are more expensive than most but will negotiate on fees. They don't charge for cash but the interest rate is very low. Service is excellent.

AnotherJoe

jamesd, if you run with your example (very enlightening, thanks), how is that kept track of and managing the tax implications? Is that through SA? because if you have several pension funds no one provider can oversee it.

Also does the pension provider normally provide separate "compartments" within the pension where you would hold the different investments & cash so they know whats uncrystallised or is that merely everything thats left?

Or do you need to convert investments to cash and take them out of the pension, so when you say "drawdown pot" you mean some place external to the pension fund, where you hold that money - might be a savings account, an S&S ISA, whatever??

Is there where a tax adviser rather than an IFA would help?

zagfles

AnotherJoe wrote: »

jamesd, if you run with your example (very enlightening, thanks), how is that kept track of and managing the tax implications? Is that through SA? because if you have several pension funds no one provider can oversee it.

Just like having multiple jobs.

Also does the pension provider normally provide separate "compartments" within the pension where you would hold the different investments & cash so they know whats uncrystallised

Usually.

or is that merely everything thats left?

Or do you need to convert investments to cash and take them out of the pension, so when you say "drawdown pot" you mean some place external to the pension fund, where you hold that money - might be a savings account, an S&S ISA, whatever??

Is there where a tax adviser rather than an IFA would help?

I can't see the need for anything as over complicated as the above, but it's not really any diffferent to having other multiple sources of income. Eg interest, dividends, earnings etc.

thiswayupuk

jamesd wrote: »

There are two broad ways to take money:

1. UFPLS. This is always 25% tax free lump sum and 75% taxable lump sum.
2. Drawdown. Up to 25% tax free lump sum (always do 25%) and then any amount you like taxable.

In both cases you don't need to take it all. An example of what can be done includes things like:

A. start with £$100,000 pot.
B. Place £20,000 into dradown, taking a 25% tax free lump sum of £5,000 and leaving £15,000 in a drawdown pot. Still hae £80,000 uncrystallised from which a tax free lump sum can be taken later.
C. Take £10,000 UFPLS from the £80,000 leaving £70,000 uncrystallised. £2,500 of the UFPLS is tax free, £7,500 is taxable.
D. Take £2,000 from the £15,000 drawdown pot in B and set up a regular payment of £1,000 a month.
E. Take a 25% tax free lump sum from the £70,000 uncrystallised pot and increase the regular monthly payment from £1,000 to £2,000.

Knowing how much money is involved and having some idea of which investments to use helps to know what places to suggest. HL is quite inexpensive for lower amounts but gradually gets more expensive as the amount involved increases. Knowing roughly how many years might elapse before she takes it all out, if she plans to do that, would also be helpful.

It would also be useful to know how old she is, since retirement age can be just about any age. First guess is state pension age and it's important there to know whether she reached it before 6 April 2016 or from then.

She's 60, her main pension pot is £12,500. My other sibling would be supporting her so we're trying to work out the most tax efficient way to withdraw the pension out.

So I guess the numbers would be:
- 25% tax free = £3125
- remaining = £9,375

With the remaining £9375 remaining/uncrystallised, I can still withdraw as tax free at a later date?

Thanks for the advise!

thiswayupuk

zagfles wrote: »

Are you happy to choose your own investments? What do you want the pension invested in? Funds, cash, shares? What amount?

HL are cheap for smallish amounts eg a few tens of thousands in funds. For larger amounts they are more expensive than most but will negotiate on fees. They don't charge for cash but the interest rate is very low. Service is excellent.

She would be just interested in withdrawing as cash as lump sum and the pot is quite small. My other sibling would be supporting her so a longer term view isnt required.

zagfles

thiswayupuk wrote: »

She's 60, her main pension pot is £12,500. My other sibling would be supporting her so we're trying to work out the most tax efficient way to withdraw the pension out.

So I guess the numbers would be:
- 25% tax free = £3125
- remaining = £9,375

With the remaining £9375 remaining/uncrystallised, I can still withdraw as tax free at a later date?

Thanks for the advise!

You can only take 25% tax free if you crystallise the whole lot. Then the rest will be taxable but if you have any unusued personal allowance you can use that.

UFPLS is taking a lump sum out of which 25% is tax free and the rest is taxable.

Drawdown is taking 25% tax free and drawing the rest as you want it, taxable.

Phased drawdown is crystallising part of the fund and taking 25% of that part tax free, the 75% of that part is then crystallised and can be drawn down, taxed, as above. The rest of the fund remains uncrystallised so you can take UFPLS's from it or put it into drawdown as above.

HL could be a good option for this sort of amount if you want to keep it in cash and draw on it over 2 or 3 years - I don't think there's any charge except an account closure fee - which IIRC is only £30 or thereabouts (as long as you don't close it within a year in which case it's a lot more). Not sure what would happen if you draw down to £1 left and just leave it open You won't get much interest though - so probably not a good option to keep in cash if it's more than a few years.

jamesd

AnotherJoe wrote: »

jamesd, if you run with your example (very enlightening, thanks), how is that kept track of and managing the tax implications? Is that through SA? because if you have several pension funds no one provider can oversee it.

Also does the pension provider normally provide separate "compartments" within the pension where you would hold the different investments & cash so they know whats uncrystallised or is that merely everything thats left?

Each pension provider tracks just the part of the money that they have. Almost all of them have the money in two pots, one that has had the tax free lump sum taken and one that hasn't. So tracking that part is easy enough.

You have to track your own tax position, or rather she has to. It's not too hard, though.

AnotherJoe wrote: »

Or do you need to convert investments to cash and take them out of the pension, so when you say "drawdown pot" you mean some place external to the pension fund, where you hold that money - might be a savings account, an S&S ISA, whatever??

Just a place to hold cash or investments like a S&S ISA that can hold either or both. Internal to the pension firm.

Some do allow the use of external accounts for cash, only normally the more expensive places aimed at those with pots of many hundreds of thousands of Pounds. But even in those the money is inside the pension pot and their managing, not directly withdrawable from the account out to a normal bank account, just withdrawable into the pension pot's cash account.

AnotherJoe wrote: »

Is there where a tax adviser rather than an IFA would help?

No real need for a tax adviser, it's prety much routine, just takes knowing that aside fromthe tax free lump sum portion the money taken from the other 75% is taxable. It's pretty common here for people to say aim to take out enough taxable money to use the full income tax personal allowance every year. That can be particularly handy when deferring claiming the state pension since that frees up more of the personal allowance because the state pension isn't being taken yet.

jamesd

thiswayupuk wrote: »

She's 60, her main pension pot is £12,500. My other sibling would be supporting her so we're trying to work out the most tax efficient way to withdraw the pension out.

Any other taxable income?

If no other taxable income and a pot size of just £12,500 she might as well use UFPLS to take it all out at once then reclaim the extra income tax she'll have deducted because of the way the pension PAYE rules work. This reclaiming can be done via the online personal tax account that we all have, no need for self-assessment.

Or it can be done in pieces each year if desired or if that helps to stay within her personal income tax allowance.

thiswayupuk wrote: »

So I guess the numbers would be:
- 25% tax free = £3125
- remaining = £9,375

With the remaining £9375 remaining/uncrystallised, I can still withdraw as tax free at a later date?

The remaining £9375 is crystallised and no further tax free lump sums can be taken from it.