Tax implications of working and also taking my pension

zagfles

The tax you pay on the pension is not detemined by your previous employer, or their pension dept, it's normal PAYE income and HMRC will tell them what tax code to use. You'll probably have a form to fill in when you start taking it like you would if you started a new job. The initial tax code may be wrong, if it is tell HMRC either on the phone or via your tax account. It's likely to be BR which means it'll be taxed at 20% if all your personal allowance is used in your job.

Pursuit

I will probably reduce my salary sacrifice contribution so that I fall within the 50K mark. This will still mean my salary sacrifice including my employers contribution will be approx. 24k per annum. 
I would like to use this DC pension and its tax free lump sum benefit next year if I could to pay off my mortgage. But I also want to contribute in the same high fashion until i am 63 and ready to retire at which point I want to take another tax free lump sum from the new funds I will have built up. Can someone explain the right term for this scenario as I'm getting confused by my DC pension provider about terminology i.e. Drawdown, UFPLS or a FLUMP.  

zagfles

UFPLS is when you take a lump sum from an "uncrystallised" pension - ie one you've not touched. 25% of the lump sum is tax free and the rest is taxable. The remaining pension remains uncrystallised.

Drawdown is when you designate funds to provide an income - ie "crystallise" it, when you can take 25% of the pot as tax free cash. The rest is available for taxable drawdown whenever you want, ie you could leave it untouched and wait, or you could start an income immediately. It's taxed when you take it.

You can also phase drawdown, ie split your pot and crystallise part of it. You'd take 25% of that part tax free, the remaining 75% of that part is crystallised and available for drawdown as above, and the rest of the pension remains uncrystallised and you can take UFPLSs or crystallise a further portion of it later.

Never heard of FLUMPs

xylophone

Never heard of FLUMPs

https://thepeoplespension.co.uk/jargonbuster/flumps/

Albermarle

Never heard of FLUMP

I think it is an alternative unofficial name for UFPLS .

Pursuit

zagfles said:

UFPLS is when you take a lump sum from an "uncrystallised" pension - ie one you've not touched. 25% of the lump sum is tax free and the rest is taxable. The remaining pension remains uncrystallised.

Drawdown is when you designate funds to provide an income - ie "crystallise" it, when you can take 25% of the pot as tax free cash. The rest is available for taxable drawdown whenever you want, ie you could leave it untouched and wait, or you could start an income immediately. It's taxed when you take it.

You can also phase drawdown, ie split your pot and crystallise part of it. You'd take 25% of that part tax free, the remaining 75% of that part is crystallised and available for drawdown as above, and the rest of the pension remains uncrystallised and you can take UFPLSs or crystallise a further portion of it later.

Never heard of FLUMPs

Which one or more than one of these options allow me to fulfill my plan of taking my 25% tax free lump sum from my current untouched DC pension next year. Then allow me to continue to contribute as I currently do. And then finally take another final lump sum when I reach 63 from these new contributions.   

Albermarle

If you take any taxable income from a DC pension then the MPAA is triggered . The Money Purchase Annual Allowance restricts you to adding more than £4k pa to a pension in future . If you want to avoid this then you should avoid the UFPLS route .
With drawdown you can  withdraw the whole 25% of tax free money ( either all at once or in stages ) without taking any taxable income .
Be aware that your pension provider may have some restrictions on what is possible, especially if it is an older pension .
You may have to transfer to a newer pension ( maybe even with the same provider) which is actually a pretty straightforward exercise.

mark55man

If you want to carry on contributing to your DC pension DO NOT use UFPLS or FLUMP.  The moment you take 1p of taxable pension income from a DC you are from that moment restricted to £4000 p.a Annual allowance - Look up MPAA.  There are a couple of exceptions, if you take the money and use all of it to buy an annuity, or if you are taking it as a small pot (ie <£10K).

It is confusing especially in the year you trigger MPAA, but be warned.  The way you should do it is to be clear you are taking tax free sums only whilst you are still contributing.  The disadvantage of this, is that assuming your investments grow you will end up with less tax free cash.  If you are not in danger of hitting the LTA (Life time allowance about £1m) and/or not in danger of being a HRT in retirement, then some would argue why bother, other than if you have headroom to keep topping up ISAs with the tax free cash  (investments could even be the same, although best to have high growth / riskier  investments in the ISAs as there is no additional limits should you be successful) 

Notepad_Phil

Pursuit said:

zagfles said:

UFPLS is when you take a lump sum from an "uncrystallised" pension - ie one you've not touched. 25% of the lump sum is tax free and the rest is taxable. The remaining pension remains uncrystallised.

Drawdown is when you designate funds to provide an income - ie "crystallise" it, when you can take 25% of the pot as tax free cash. The rest is available for taxable drawdown whenever you want, ie you could leave it untouched and wait, or you could start an income immediately. It's taxed when you take it.

You can also phase drawdown, ie split your pot and crystallise part of it. You'd take 25% of that part tax free, the remaining 75% of that part is crystallised and available for drawdown as above, and the rest of the pension remains uncrystallised and you can take UFPLSs or crystallise a further portion of it later.

Never heard of FLUMPs

Which one or more than one of these options allow me to fulfill my plan of taking my 25% tax free lump sum from my current untouched DC pension next year. Then allow me to continue to contribute as I currently do. And then finally take another final lump sum when I reach 63 from these new contributions.   

You would use drawdown with nil income to get the 25% tax free lump sum out of your pension whilst still allowing you to contribute as you currently do (taking any taxable income will mean that MPAA rules come into play).

At this point your pension will be fully crystalised.

The new contributions will then go into a new segment of the pension and will be uncrystalised.

At some point in the future you can then either use UFPLS to take the new uncrystalised segment fully out (25% tax free, 75% taxable) or simply put the new uncrystalised segment into drawdown and either take an income or not - if you take an income then MPAA rules come in, if you take nil income then you could continue paying into the pension which would again go into a new uncrystalised segment.

Note that not all pension providers allow you full access to every pension withdrawal method, so you'd need to check that your provider will allow you to do this.

Pursuit

Notepad_Phil said:

Pursuit said:

zagfles said:

UFPLS is when you take a lump sum from an "uncrystallised" pension - ie one you've not touched. 25% of the lump sum is tax free and the rest is taxable. The remaining pension remains uncrystallised.

Drawdown is when you designate funds to provide an income - ie "crystallise" it, when you can take 25% of the pot as tax free cash. The rest is available for taxable drawdown whenever you want, ie you could leave it untouched and wait, or you could start an income immediately. It's taxed when you take it.

You can also phase drawdown, ie split your pot and crystallise part of it. You'd take 25% of that part tax free, the remaining 75% of that part is crystallised and available for drawdown as above, and the rest of the pension remains uncrystallised and you can take UFPLSs or crystallise a further portion of it later.

Never heard of FLUMPs

Which one or more than one of these options allow me to fulfill my plan of taking my 25% tax free lump sum from my current untouched DC pension next year. Then allow me to continue to contribute as I currently do. And then finally take another final lump sum when I reach 63 from these new contributions.   

You would use drawdown with nil income to get the 25% tax free lump sum out of your pension whilst still allowing you to contribute as you currently do (taking any taxable income will mean that MPAA rules come into play).

At this point your pension will be fully crystalised.

The new contributions will then go into a new segment of the pension and will be uncrystalised.

At some point in the future you can then either use UFPLS to take the new uncrystalised segment fully out (25% tax free, 75% taxable) or simply put the new uncrystalised segment into drawdown and either take an income or not - if you take an income then MPAA rules come in, if you take nil income then you could continue paying into the pension which would again go into a new uncrystalised segment.

Note that not all pension providers allow you full access to every pension withdrawal method, so you'd need to check that your provider will allow you to do this.

Thanks, this is what I was looking for, but was confused about the impact on new contributions and taking another 25% in the future. I have no intention of triggering the MPAA as that would be a disaster for my future plans. Thanks to everyone for their responses. I am much better informed now.