Any point to choosing UFPLS?

kerrick

The main difference between UFPLS and Drawdown would seem to be that with UFPLS you have to take both tax free and the taxable income straight away. With Drawdown you take the tax free and can leave the taxable portion invested and can withdraw from that amount at any time - even the next week if you wanted. As you have practically instant access to the taxable income in Drawdown as in UFPLS, who may benefit from choosing UFPLS over Drawdown?
Why may Drawdown not always be the best choice?

Can you commence assessing SIPP with an UFPLS crystallisation then next crystallisation do the other Drawdown or vice versa, and change between the two during retirement (if there are circumstances where one is more beneficial than the other)? 

xylophone

Had you seen this?

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/flexi-access-drawdown-vs-ufpls/

kerrick

I read through this and it's a useful giude to both FAD and UFPLS. But it seems to confirm that UFPLS doesn't do anything that FAD cannot also offer. I can't see any unique benefit that would make anyone choose UFPLS. All it seems to do is take away the choice to change your mind or adjust when you take the taxable income!

Surely there must be some compelling advantages to UFPLS that cannot be replicated by FAD or there would be no point having both - so what are they?

dunstonh

Any point to choosing UFPLS?

Absolutely. Indeed, it is the most popular method we use with clients.  Very few have the need for drawdown.  Monthly UFPLS or annual UFPLS works better for them.

 who may benefit from choosing UFPLS over Drawdown?

Those that do not need a lump sum up front.  Those that have excess personal allowance available.

Can you commence assessing SIPP with an UFPLS crystallisation then next crystallisation do the other Drawdown or vice versa, and change between the two during retirement (if there are circumstances where one is more beneficial than the other)? 

yes.

But it seems to confirm that UFPLS doesn't do anything that FAD cannot also offer.

UFPLS is style of drawdown.  Combining UFPLS and drawdown with phasing is extremely common.  Tax planning is probably the main thing it offers.

 All it seems to do is take away the choice to change your mind or adjust when you take the taxable income!

It doesn't take away any choice.  Indeed, it potentially increases future choice because your remaining fund remains uncrystallised meaning you still have 25% access on the whole fund.    (or some of it if you are using a combination).  If you have fully crystallised at the outset, then you have no 25% tax free amount left.

kerrick

dunstonh said:

Any point to choosing UFPLS?

Absolutely. Indeed, it is the most popular method we use with clients.  Very few have the need for drawdown.  Monthly UFPLS or annual UFPLS works better for them.

 who may benefit from choosing UFPLS over Drawdown?

Those that do not need a lump sum up front.  Those that have excess personal allowance available.

Can you commence assessing SIPP with an UFPLS crystallisation then next crystallisation do the other Drawdown or vice versa, and change between the two during retirement (if there are circumstances where one is more beneficial than the other)? 

yes.

But it seems to confirm that UFPLS doesn't do anything that FAD cannot also offer.

UFPLS is style of drawdown.  Combining UFPLS and drawdown with phasing is extremely common.  Tax planning is probably the main thing it offers.

 All it seems to do is take away the choice to change your mind or adjust when you take the taxable income!

It doesn't take away any choice.  Indeed, it potentially increases future choice because your remaining fund remains uncrystallised meaning you still have 25% access on the whole fund.    (or some of it if you are using a combination).  If you have fully crystallised at the outset, then you have no 25% tax free amount left.

UPFLS best when not needing a lump sum up front. But don't both UPFLS and FAD mandate you must take the 25% tax free lump sum up front? But only UPFLS forces you to also take the taxable amount at the same time too.

UPFLS best because your remaining fund remains uncrystallised leaving 25% tax free payments in future. I don't understand this. If your SIPP is 500k and you want to crystallise 200k. With both UPFLS and FAD don't you still have 300k uncrystallised with 25% of that available for future tax free amounts?

With UPFLS 200k crystallisation you must take 50k tax free and withdraw 150k taxable now. With FAD you must take 50k tax free and can leave 150k invested, but can  withdraw it the next day if you want (so practically the same result as UPFLS) but crucially you can choose not to or change the withdrawals if circumstances change.

Have I got something wrong with the above facts?

MallyGirl

If you are comparing the 2 methods against the whole fund there is maybe less of an obvious distinction.
I always assumed people did £16kish UPFLS per year to use their £12.5k 0% tax band and also get the 25% tax free £4k ish, or if expecting to pay tax then bigger numbers under the next tax band. Managed ongoing income.

dunstonh

UPFLS best when not needing a lump sum up front. But don't both UPFLS and FAD mandate you must take the 25% tax free lump sum up front?

Drawdown allows you to take the whole 25% up front.   UFPLS means you take 25% of what you draw.

But only UPFLS forces you to also take the taxable amount at the same time too.

Correct.  But for many people, that fits with their objectives and circumstances.

UPFLS best because your remaining fund remains uncrystallised leaving 25% tax free payments in future. I don't understand this. If your SIPP is 500k and you want to crystallise 200k. With both UPFLS and FAD don't you still have 300k uncrystallised with 25% of that available for future tax free amounts?

The two methods would work differently with different needs.    You use the method that fits your particular need and circumstances.

Let's say you have someone who is aged 58 with no other income but needs a draw of £16k a year.     Why would you waste any more tax free cash than you need to pay that £16k a year?  You would do a UFPLS of £1,333 per month (or £16k a year) of which 25% is tax free but the 75% chunk falls fully within the personal allowance and is tax free.   The pension remains 100% uncrystallised.

Similar can work where people with larger funds/needs look to use up the basic rate band.  UFPLS would aim to have the 75% use up the basic rate band and excess personal allowance with the 25% chunk on top.

Moonwolf

Isn’t a benefit of UFPLS that any growth is taxed at 25%? So if your pot grows faster than inflation there is a real terms tax saving over the life of the drawdown?

Prism

dunstonh said:

Let's say you have someone who is aged 58 with no other income but needs a draw of £16k a year.     Why would you waste any more tax free cash than you need to pay that £16k a year?  You would do a UFPLS of £1,333 per month (or £16k a year) of which 25% is tax free but the 75% chunk falls fully within the personal allowance and is tax free.   The pension remains 100% uncrystallised.

Similar can work where people with larger funds/needs look to use up the basic rate band.  UFPLS would aim to have the 75% use up the basic rate band and excess personal allowance with the 25% chunk on top.

In that example couldn't you just drawdown (using FAD) £16k and take exactly the same amounts out. I also cannot see a scenario that UFPLS can do that FAD cannot do.

squirrelpie

I want a regular income every month. I want to be able to adjust the amount of income once a year, when I think about thinks and revise my plans on the basis of my current needs and the recent investment performance. I have other income so pay tax (BR) on any taxable money I take from my SIPP.

I started out thinking a monthly UFPLS would be most suitable and then discovered that my provider required lots of form-filling to accomplish anything close to that (it may have improved recently, I haven't looked yet).

So the past couple of years I have crystallised a year's income (pre tax), paid the tax-free sum into a savings account and taken a monthly drawdown of the taxable part at the required pre-tax amount. When the crystallised pot is empty I pay myself the post-tax amount from the savings account every month and at the end of the year am left with a few pennies interest in the savings account.

It all sounds quite complicated but it worked out for me to be less paperwork and attention required to do it this way. So IMHO it's horses for courses and the nature of the course can depend on very individual factors.

dunstonh

In that example couldn't you just drawdown (using FAD) £16k and take exactly the same amounts out. I also cannot see a scenario that UFPLS can do that FAD cannot do.

Its terminology and functionality.  Go back to drawdown before the 2016 changes you could do the equivalent of  UFPLS or drawdown (albeit it within GAD limits), but it was all done under the drawdown name.  it wasn't called two different things.

Now, if you take 25% and 0-74.99% then you are utilising drawdown.  If you take 25% and 75% then it's UFPLS. UFPLS doesn't really need to exist as it is still drawdown.

I hypothesise that it became two different names as legacy plans could often facilitate UFPLS as it doesn't require the setting up of a crystallised fund and they had functionality to pay lump sums because of the old trivial rules.    

When I type in transactions, whether UFPLS or drawdown, the providers and platforms we use mostly do not differentiate.  They ask how much you want to crystallise and how much of the 75% element you want paid out.     If you didn't know UFPLS and drawdown existed as two names, you wouldn't be any wiser if inputting the transactions.

So, it's pretty much unnecessary terminology IMO.