UFPLS v Drawdown

needymr

Which is the better way to drawn on a pension pot? Flexi-access drawdown or UFPLS. Not a financial guru so please treat me as a novice. Many thanks.

dunstonh

They are not the only two methods.

The best way is the one that matches your circumstances, needs, objectives and tax position. There is no one-best method.

Malthusian

UFPLS means that for every £1 of tax free cash you take you have to draw £3 of taxable income. With drawdown you don't have to draw taxable income.

UFPLS is therefore typically much less flexible and often results in a much higher tax bill. The main reason to use UFPLS is if your current pension provider doesn't offer drawdown.

Is this still the same £40k pot you had in 2012?

xylophone

is if your current pension provider doesn't offer drawdown.

He could consider a transfer to a scheme offering drawdown.

pip895

Malthusian wrote: »

UFPLS means that for every £1 of tax free cash you take you have to draw £3 of taxable income. With drawdown you don't have to draw taxable income.

UFPLS is therefore typically much less flexible and often results in a much higher tax bill. The main reason to use UFPLS is if your current pension provider doesn't offer drawdown.
QUOTE]

I'm trying to get my head around this to - I thought there were advantages to UFPLS in that the pension remaining wasn't crystallised so you could decide to add more to it after drawing out funds??

bigadaj

pip895 wrote: »

Malthusian wrote: »

UFPLS means that for every £1 of tax free cash you take you have to draw £3 of taxable income. With drawdown you don't have to draw taxable income.

UFPLS is therefore typically much less flexible and often results in a much higher tax bill. The main reason to use UFPLS is if your current pension provider doesn't offer drawdown.
QUOTE]

I'm trying to get my head around this to - I thought there were advantages to UFPLS in that the pension remaining wasn't crystallised so you could decide to add more to it after drawing out funds??

Once you start drawing above the 25% then that limits pension contributions anyway, to the non earnings threshold.

A typical use of ufpls would be where no other income is being drawn and someone might want to take out taxable income to use up their personal allowance, so an annual withdrawal might be personal allowance plus the tax free lump sum. This might allow someone to retire early relying on a small pension with no other income, and bridge the gap to a db or state pension payment at a later stage.

Malthusian

xylophone wrote: »

He could consider a transfer to a scheme offering drawdown.

Some older plans now offer UFPLS but not drawdown. If you want to cash the whole thing in, UFPLS may be simpler than transferring it. (Of course, cashing the whole thing in is rarely a good idea.)

pip895 wrote:

I'm trying to get my head around this to - I thought there were advantages to UFPLS in that the pension remaining wasn't crystallised so you could decide to add more to it after drawing out funds??

Same applies with flexi-access drawdown - you can partially crystallise.

where_are_we

I am retired and have used UFPLS from my pension each year to supplement my small DB pension and take me up to my personal tax allowance and pay no income tax at all. I have deferred my state pension. How would taking flexi-access drawdown instead be a better choice for me?

Malthusian

where_are_we wrote: »

I am retired and have used UFPLS from my pension each year to supplement my small DB pension and take me up to my personal tax allowance and pay no income tax at all. I have deferred my state pension. How would taking flexi-access drawdown instead be a better choice for me?

Flexi-access drawdown allows you to take the full tax free lump sum upfront and still take only enough taxable income to bring you up to your personal allowance.

Of course you may not have wanted or needed the tax free cash (and leaving it in the pension allows the remaining tax free lump sum to grow). But the point is that flexi-access drawdown gives you that option, UFPLS doesn't.

tacpot12

While Malthusian is correct that UFPLS doesn't allow you to take the full tax free lump upfront, this means that UFPLS should be the default approach to draw down for anyone who doesn't need a lump sum. The two methods can be combined; e.g. draw down using UFPLS, then use Flexi-drawdown to take a lump sum tax free.

Flexi-drawdown is LESS flexible than UFPLS because with Flexi-drawdown you might be bringing forward the crystallisation of benefits earlier than you need to and once you have done this it becomes irreversible.

coyrls

tacpot12 wrote: »

While Malthusian is correct that UFPLS doesn't allow you to take the full tax free lump upfront, this means that UFPLS should be the default approach to draw down for anyone who doesn't need a lump sum. The two methods can be combined; e.g. draw down using UFPLS, then use Flexi-drawdown to take a lump sum tax free.

Flexi-drawdown is LESS flexible than UFPLS because with Flexi-drawdown you might be bringing forward the crystallisation of benefits earlier than you need to and once you have done this it becomes irreversible.

I would say phased flexi-drawdown is more flexible than UFPLS. With UFPLS, you have to make the full 25% + 75% withdrawal. With phased flexi-drawdown you can take 25% of the sum crystallised, together with any percentage that makes sense (usually for tax reasons) from the remaining 75%. If you want you can make phased flexi access drawdown work exactly like UFPLS but you have other options as well.