Difference between flexi-access-drawdown and UFPLS

Albermarle

I had assumed they let me take the 25% so my pot would not be crystallised

To take the 25% tax free then the whole pot has to be crystallised . However the MPAA is only triggered when you actually take any income for the remaining crystallised 75% . If you do not touch it , then no problem .

jamesd

bluenose1 said:

Many thanks jamesd you have saved me considering a costly error. I thought I could take 25% tax free of my USS DC tax pot at 55 whilst still working and not affect the MPAA.
However looking on their website the only option would be UFPLS.
I had assumed they let me take the 25% so my pot would not be crystallised.

Taking the 25% does cause crystallisation.

Will they let you transfer some or all of the DC? Then small pots or just tax free money would become available.

bluenose1

jamesd said.  Will they let you transfer some or all of the DC? Then small pots or just tax free money would become available.

 Hi Jamesd, looking at the below looks like I can thanks. However the main reason I was taking it out was because I thought i was earning no interest on it and thought I may as well put in premium bonds. As it is 0.8% I may as well leave it where it is for now.  I am already taking out two small pots when I am 55 in June from HL. I will continue to do this as this account does not earn any interest. 
Nearly a very expensive mistake averted. 

Albermarle- many thanks for responding but the USS fact sheet say as soon as you start taking your pot it affects MPAA.

You can take cash payments from us (known as UFPLS). Or you could transfer your savings to another scheme which may offer this and other options such as flexi-access drawdown or to buy an income for life (which is called an annuity). Keep in mind that once you start taking your Investment Builder savings (or any other defined contribution savings), it will trigger the Money Purchase Annual Allowance. This limits how much you can pay into any defined contribution arrangement, like the Investment Builder, in the future.

Albermarle

You can take cash payments from us (known as UFPLS)

UFPLS payments include taxable income so will trigger the MPAA.

Keep in mind that once you start taking your Investment Builder savings (or any other defined contribution savings), it will trigger the Money Purchase Annual Allowance.

This statement is misleading . You can take the tax free cash from a defined contributions pension without triggering the MPAA, as long as you do not take one penny of taxable money .

jamesd

It's not taxable but flexible access that triggers the MPAA. Flexible is defined as UFPLS or taxable from flexi-access drawdown.

Not classed as flexible includes small pot rule or taxable from older capped drawdown within the GAD limit.

Written because bluenose1 is planning to use small pots.

bluenose1

Thanks Jamesd. 

I have spent a while looking at guidance and agree taking anything via UFPLS will affect my MPAA.
I think I am going to take 3 small HL pots this year, was only going to do 2 but as I am investing  most of my earned income in this tax year into another SIPP with the intention of retiring in next year will keep myself a basic rate taxpayer.  
Just when I start to think I understand pensions!!!! 

Abelarme read this, I think it explains it well.
https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls/
UFPLS Each  time you take money from your pension pot, 25% of it is tax free and you pay tax on the other 75% of each lump sum. If you take your tax-free cash gradually your money purchase annual allowance (MPAA) is triggered by the first lump sum you take. At any time you can choose to take a different retirement option with any remaining money in your pension pot or transfer it to another provider.

Albermarle

bluenose1 said:

Thanks Jamesd. 

I have spent a while looking at guidance and agree taking anything via UFPLS will affect my MPAA.
I think I am going to take 3 small HL pots this year, was only going to do 2 but as I am investing  most of my earned income in this tax year into another SIPP with the intention of retiring in next year will keep myself a basic rate taxpayer.  
Just when I start to think I understand pensions!!!! 

Abelarme read this, I think it explains it well.
https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls/
UFPLS Each  time you take money from your pension pot, 25% of it is tax free and you pay tax on the other 75% of each lump sum. If you take your tax-free cash gradually your money purchase annual allowance (MPAA) is triggered by the first lump sum you take. At any time you can choose to take a different retirement option with any remaining money in your pension pot or transfer it to another provider.

Yes that is correct for UFPLS payments .
However if instead you go into drawdown then you can take tax free cash on its own ( until it runs out ) , without taking any taxable income . In that case the MPAA is not triggered as no taxable income is taken .

howard3844

UncleZen said:

I am sure this has been answered before. But I am struggling to understand the difference between the two options above.
Can someone explain it please?

FAD - if you want £10k now, move £40k into drawdown account and take £10k tax free. Whatever you take from the drawdown account (now at £30k) in the future is taxable (remember first £12.5k pa is not taxed).
UFPLS - taxed at 20% apart from first £25% immediately.    Therefore if you want £10k now (a/a) .. take £12.5k out of SIPP . No drawdown account has been created, so all left in SIPP continues to qualify for 25% tax free.