Flexi Access Drawdown vs UFPLS

GazzaBloom

I'm a couple of years out from retirement and pondering whether FAD or UFPLS is more suitable for me. I would like to draw my DC pension to a preset monthly amount with 25% tax free and 75% taxable (subject to my personal tax free allowance) each month. I will review annually at the start of each year what the next years monthly amount will be and also which part of my portfolio it will draw from.

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

Pat38493

GazzaBloom said:

I'm a couple of years out from retirement and pondering whether FAD or UFPLS is more suitable for me. I would like to draw my DC pension to a preset monthly amount with 25% tax free and 75% taxable (subject to my personal tax free allowance) each month. I will review annually at the start of each year what the next years monthly amount will be and also which part of my portfolio it will draw from.

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

I think that most providers insist that you take 25% tax free out of the pension if you use flexi access drawdown and only the 75% goes into the drawdown pot, but I suppose you could then just draw down that 75% instantly.  I am not sure what the advantage would be though unless it saved on paperwork or charges.

There has been some debate on these boards around whether using UFPLS or FAD is better from a tax point of view in the long term.  Theoretically, if you are investing any unspent tax free cash that you took in the same way outside the pension as you were inside, it shouldn't make any significant difference.  Beyond that it also may come down to medium term tax planning I would think.

GazzaBloom

Pat38493 said:

GazzaBloom said:

I'm a couple of years out from retirement and pondering whether FAD or UFPLS is more suitable for me. I would like to draw my DC pension to a preset monthly amount with 25% tax free and 75% taxable (subject to my personal tax free allowance) each month. I will review annually at the start of each year what the next years monthly amount will be and also which part of my portfolio it will draw from.

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

I think that most providers insist that you take 25% tax free out of the pension if you use flexi access drawdown and only the 75% goes into the drawdown pot, but I suppose you could then just draw down that 75% instantly.  I am not sure what the advantage would be though unless it saved on paperwork or charges.

There has been some debate on these boards around whether using UFPLS or FAD is better from a tax point of view in the long term.  Theoretically, if you are investing any unspent tax free cash that you took in the same way outside the pension as you were inside, it shouldn't make any significant difference.  Beyond that it also may come down to medium term tax planning I would think.

Thanks. I guess I could FAD a years worth at a time at the start of the year, draw the 25% tax free in one go and then draw the remaining 75% monthly? I'm currently at looking drawing around £32,000 a year so the 25% would be £8K of that up front and consumed within 4 months or so.

squirrelpie

GazzaBloom said:

Thanks. I guess I could FAD a years worth at a time at the start of the year, draw the 25% tax free in one go and then draw the remaining 75% monthly? I'm currently at looking drawing around £32,000 a year so the 25% would be £8K of that up front and consumed within 4 months or so.

That's my preferred option. With my provider (HL) UFPLS is a lot more hassle with extra bureaucracy every time.

dunstonh

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

I find that I use UFPLS more than other method.   i.e. monthly regular income split 75/25.
There are some that have a mix of regular UFPLS and a bit of 25% only on top.

Its really all about matching the method to whatever is the most tax efficient (including IHT - in case other wrappers are available).

Doctor_Who

GazzaBloom said:

I'm a couple of years out from retirement and pondering whether FAD or UFPLS is more suitable for me. I would like to draw my DC pension to a preset monthly amount with 25% tax free and 75% taxable (subject to my personal tax free allowance) each month. I will review annually at the start of each year what the next years monthly amount will be and also which part of my portfolio it will draw from.

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

I'm with Interactive Investor and have used UFPLS withdrawals in this financial year and the last one. All done online in 10-15mins and the money is in my bank account within 10 days. I like the idea of crystallising and withdrawing what I need and leaving everything else uncrystallised, so UFPLS works for me.

GazzaBloom

Doctor_Who said:

GazzaBloom said:

I'm a couple of years out from retirement and pondering whether FAD or UFPLS is more suitable for me. I would like to draw my DC pension to a preset monthly amount with 25% tax free and 75% taxable (subject to my personal tax free allowance) each month. I will review annually at the start of each year what the next years monthly amount will be and also which part of my portfolio it will draw from.

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

I'm with Interactive Investor and have used UFPLS withdrawals in this financial year and the last one. All done online in 10-15mins and the money is in my bank account within 10 days. I like the idea of crystallising and withdrawing what I need and leaving everything else uncrystallised, so UFPLS works for me.

So, you have to request an UFPLS payment each time you want one? 

I'm hoping to set up a set and forget request at the start of each year but prefer to have the money paid in monthly (like wages) so there is no temptation to spend more earlier in the year.

Albermarle

AIUI, if you have a financial advisor, they can organise regular UFPLS payments with the pension platforms they use.
However as a retail customer, the provider appears to be obliged to ask you various compliance questions every time you take a UFPLS . Probably because many clients will use UFPLS to withdraw all their pension pot, or large chunks of it. So the provider has to inform the customer of the risks of doing this, and make sure they understand what they are doing.
Some providers seem to have streamlined the process to some extent, whilst others require a more detailed process each time, making regular UFPLS semi unworkable. One way around this is to take one UFPLS each year, and put it in a savings account and take the money as needed.

Pat38493

GazzaBloom said:

Pat38493 said:

GazzaBloom said:

I'm a couple of years out from retirement and pondering whether FAD or UFPLS is more suitable for me. I would like to draw my DC pension to a preset monthly amount with 25% tax free and 75% taxable (subject to my personal tax free allowance) each month. I will review annually at the start of each year what the next years monthly amount will be and also which part of my portfolio it will draw from.

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

I think that most providers insist that you take 25% tax free out of the pension if you use flexi access drawdown and only the 75% goes into the drawdown pot, but I suppose you could then just draw down that 75% instantly.  I am not sure what the advantage would be though unless it saved on paperwork or charges.

There has been some debate on these boards around whether using UFPLS or FAD is better from a tax point of view in the long term.  Theoretically, if you are investing any unspent tax free cash that you took in the same way outside the pension as you were inside, it shouldn't make any significant difference.  Beyond that it also may come down to medium term tax planning I would think.

Thanks. I guess I could FAD a years worth at a time at the start of the year, draw the 25% tax free in one go and then draw the remaining 75% monthly? I'm currently at looking drawing around £32,000 a year so the 25% would be £8K of that up front and consumed within 4 months or so.

Yes you could do that.  As others have suggested doing an automatic monthly UFPLS as a DIY pensioner doesn't seem to be possible, although providers like II make it reasonably easy.  Not sure you would want to do it monthly though.

The other thing to take into account is specific circumstances - e.g. if you want to take a larger amount in the first year, and you are still partially working in that year, for example to finish paying off your mortgage, you might want to use tax free cash in order to avoid paying 40% tax on your taxable portion of your pension withdrawal.  Even this might not make a huge difference when you are looking at a 30 to 40 year time horizon.

GazzaBloom

Albermarle said:

AIUI, if you have a financial advisor, they can organise regular UFPLS payments with the pension platforms they use.
However as a retail customer, the provider appears to be obliged to ask you various compliance questions every time you take a UFPLS . Probably because many clients will use UFPLS to withdraw all their pension pot, or large chunks of it. So the provider has to inform the customer of the risks of doing this, and make sure they understand what they are doing.
Some providers seem to have streamlined the process to some extent, whilst others require a more detailed process each time, making regular UFPLS semi unworkable. One way around this is to take one UFPLS each year, and put it in a savings account and take the money as needed.

Go it. I'll have a chat with Aviva and see what they offer

Doctor_Who

GazzaBloom said:

Doctor_Who said:

GazzaBloom said:

I'm a couple of years out from retirement and pondering whether FAD or UFPLS is more suitable for me. I would like to draw my DC pension to a preset monthly amount with 25% tax free and 75% taxable (subject to my personal tax free allowance) each month. I will review annually at the start of each year what the next years monthly amount will be and also which part of my portfolio it will draw from.

That sounds like UFPLS to me, but, can FAD replicate this drawdown plan? If so, what would be the consequences of using one vs the other? 

I'm with Interactive Investor and have used UFPLS withdrawals in this financial year and the last one. All done online in 10-15mins and the money is in my bank account within 10 days. I like the idea of crystallising and withdrawing what I need and leaving everything else uncrystallised, so UFPLS works for me.

So, you have to request an UFPLS payment each time you want one? 

I'm hoping to set up a set and forget request at the start of each year but prefer to have the money paid in monthly (like wages) so there is no temptation to spend more earlier in the year.

As a retail investor with II, yes. As Albermarle says, there are various questions to be answered each time (have you taken financial advice? have you contacted PensionWise? are you aware of the tax implications? etc), but the whole process is quite quick and easy. From reading several posts I think II is one of the easier platforms to use UFPLS. I have no intention of taking a monthly UFPLS, maybe 1-2 times per year, so it really isn't an issue for me.