Flexi Drawdown Queries

dunstonh

So does just using UFPLS mean the pension is not in drawdown because nothing has been crystalised?

Correct. Everything left in the pension is uncrystallised and therefore not in drawdown.

Many stakeholder pensions and old personal pensions that do not support drawdown will allow UFPLS. (mainly as all they had to do is tweak the coding on their software for trivial lump sums).

So, you dont need a plan that supports all drawdown methods when you use UFPLS.

I think the pension only becomes crystalised when you take some or all of the 25% tax-free lump sum without the corresponding taxable amount - is that correct?)

Only the relative amount does. Not the whole fund. If you had a fund of £100,000 uncrystllised but wanted £10,000 tax free out, you would only crystallise £40,000 of the fund (£10k out, 30k remaining in the pension). That would require a plan that supports flexi-access drawdown. However, £60k of the fund would still be uncrystallised.

StellaN

MPN wrote: »

Its difficult to say which route would clear more tax free money from your pension pot until you reach SP age. Indeed, there might not be much to choose between the two?

I agree there is hardly any difference at all between taking the full TFLS and UFPLS. For instance, if for ease, we keep the personal allowance to £11,850 per annum it works out as follows:-

£150K x 25% = £37,500 plus 6 years personal allowance at £11,850 = £71,000 making the total amount withdrawn before state pension age of £108,500. (this assumes you don't drawdown your personal allowance in this tax year alongside the TFLS?)

UFPLS would be £15,800 x 7 years = £110,600

So, hypothetically the difference in the amount withdrawn over the 7 year period would be £2100 so really its a personal choice based upon your circumstances at the time and whether you want to crystallise all or part of your pension.

EdGasketTheSecond

But if you take the full £37,500 out tax-free, it is no longer invested in a tax-free wrapper so, depending on what you do with it, you will lose potential capital tax-free growth on that lump sum. That's if I understand correctly?


You could of course put £20K straight back into an ISA I suppose. I think generally people are advised that if they have no need of the 25% lump sum now; then don't take it.


Also pension pots are not subject to inheritance tax like ISA's would be so that is another consideration e.g. maybe spend your ISAs first to minimise potential inheritance tax.

Sue58

EdGasketTheSecond wrote: »

But if you take the full £37,500 out tax-free, it is no longer invested in a tax-free wrapper so, depending on what you do with it, you will lose potential capital tax-free growth on that lump sum. That's if I understand correctly?


You could of course put £20K straight back into an ISA I suppose. I think generally people are advised that if they have no need of the 25% lump sum now; then don't take it.


Also pension pots are not subject to inheritance tax like ISA's would be so that is another consideration e.g. maybe spend your ISAs first to minimise potential inheritance tax.

If I decide to take the full 25% TFLS then it will go into my both my husband and my S&S ISA accounts into the same funds. The IHT is not applicable to us because our whole estate is not large enough.

Sue58

StellaN wrote: »

I agree there is hardly any difference at all between taking the full TFLS and UFPLS. For instance, if for ease, we keep the personal allowance to £11,850 per annum it works out as follows:-

£150K x 25% = £37,500 plus 6 years personal allowance at £11,850 = £71,000 making the total amount withdrawn before state pension age of £108,500. (this assumes you don't drawdown your personal allowance in this tax year alongside the TFLS?)

UFPLS would be £15,800 x 7 years = £110,600

So, hypothetically the difference in the amount withdrawn over the 7 year period would be £2100 so really its a personal choice based upon your circumstances at the time and whether you want to crystallise all or part of your pension.

That's interesting thank you. As there is not a big difference I suppose as you mentioned it is purely down to whether I want to crystallise the full pension pot or just part of it.

At the moment I am leaning towards UFPLS but need to make a decision pretty quickly so that I can get my drawdown form completed and back to my platform.

green_man

dunstonh wrote: »

Correct. Everything left in the pension is uncrystallised and therefore not in drawdown.

Many stakeholder pensions and old personal pensions that do not support drawdown will allow UFPLS. (mainly as all they had to do is tweak the coding on their software for trivial lump sums).

So, you dont need a plan that supports all drawdown methods when you use UFPLS.



Only the relative amount does. Not the whole fund. If you had a fund of £100,000 uncrystllised but wanted £10,000 tax free out, you would only crystallise £40,000 of the fund (£10k out, 30k remaining in the pension). That would require a plan that supports flexi-access drawdown. However, £60k of the fund would still be uncrystallised.

The problem seems to be if you look at many of the DIY SIPP platforms they seem to charge per UFPLS event. Therefore if you just want to withdraw a regular monthly amount (25% being tax exempt) then this method becomes not cost efficient.

So what can you do instead?

Obviously there are various options but I find it strange that most don’t support what I would think would be a failrly common requirement in a cost effective way.

dunstonh

The problem seems to be if you look at many of the DIY SIPP platforms they seem to charge per UFPLS event.

It is strange how the pricing on intermediary platforms and DIY platforms differs so much. Intermediary ones are mostly mono charged (single platform charge of x%). Some have menus of charges but most don't. Yet on the DIY side, a menu of charges seems to be more commonplace.

The regulator put in a lot of work over the years to encourage providers to simplify things. However, they seem to missed the DIY side.

So what can you do instead?

There has to be a platform on the DIY side that is both competitive and offers phased/ad-hoc drawdown. Any mention of it in Snowman's spreadsheet?

StellaN

dunstonh wrote: »

It is strange how the pricing on intermediary platforms and DIY platforms differs so much. Intermediary ones are mostly mono charged (single platform charge of x%). Some have menus of charges but most don't. Yet on the DIY side, a menu of charges seems to be more commonplace.

The regulator put in a lot of work over the years to encourage providers to simplify things. However, they seem to missed the DIY side.

There has to be a platform on the DIY side that is both competitive and offers phased/ad-hoc drawdown. Any mention of it in Snowman's spreadsheet?

Fidelity has no drawdown charges, exit charges and also charges are capped at £45 per annum if you only hold IT's or ETF's in your SIPP.

EdGasketTheSecond

green_man wrote: »

The problem seems to be if you look at many of the DIY SIPP platforms they seem to charge per UFPLS event. Therefore if you just want to withdraw a regular monthly amount (25% being tax exempt) then this method becomes not cost efficient.

So what can you do instead?

Make just 1 UFPLS withdrawal per year that will last you the whole year and store the 11 months worth of payments you aren't using immediately in an instant access account. Then you will only pay 1 UFPLS charge per year.

Sue58

Linton wrote: »

You cannot take out taxable money from a pension unless you also take out the corresponding tax free 25% either at the same time, or have done it previously. So the closest you can get to what you want is, as OMG explains, UFPLS.


If you want it in this tax year you need to find out from your provider their deadline for accepting payment requests. In general the providers just run one "payroll" a month and may require 2 weeks notice. My provider, BestInvest, requires that any request be made by post with a handwritten signature - no email or online forms etc.

Just an update, the pension advisor at Fidelity has informed me that the latest date to receive the completed drawdown form is 21 March not the 31 as I had been previously told by one of their telephone customer service team.

Now, I just have to make a final decision between taking the full TFLS or UFPLS.