Savings interest and payments from SIPPs

lvegas2009

ColdIron said:

Stargunner said:

ColdIron said:

Any reason for using UFPLS over drawdown? There's a lot to be said for a steady income and its simpler taxwise

I wouldnt look to take the £20k in one go, i was considering taking it monthly over the year to give a steady income

Then that's (flexible access) drawdown and not UFPLS. A good decision for your, and most people's, needs

Can you explain what the difference is between flexible access drawdown and UFLPLS are?

I am not considering taking the 25% tax free lump sum in one go.  If I withdraw a total of £18k in one go in in a year (25% tax free), is there any practical difference to taking 12 instalments of £1500 (each 25% tax free)

ColdIron

lvegas2009 said:

ColdIron said:

Stargunner said:

ColdIron said:

Any reason for using UFPLS over drawdown? There's a lot to be said for a steady income and its simpler taxwise

I wouldnt look to take the £20k in one go, i was considering taking it monthly over the year to give a steady income

Then that's (flexible access) drawdown and not UFPLS. A good decision for your, and most people's, needs

Can you explain what the difference is between flexible access drawdown and UFLPLS are?

There are many explanations that you can google, this is as good as any

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/flexi-access-drawdown-vs-ufpls

With UFPLS you withdraw money and the PCLS (tax free 25%) at the same time from your uncrystallised pension. You do not have to take everything in one go, you can do it in stages. As dunstonh pointed out in an earlier post automated UFPLS is not commonly offered with DIY or self invested pensions (SIPPs) such as HL

With FAD you move some or all of your uncrystallised pension into a 'drawdown' account and take the PCLS when (and only when) it transfers. This money is considered to be crystallised. You could just leave it there invested or in cash. What many people would do is then set up instructions for it to be paid out regularly; monthly, quarterly biannually or whatever

Neither of these methods need to be all or nothing, you can do it in stages, you could even mix the two if you really wanted

A critical difference between the two is that UFPLS will trigger the MPAA (money purchase annual allowance) and reduce the future payments into a pension to £10,000 pa. FAD will not if you only crystallise your money by moving it into drawdown (and take the PCLS). Taking an income from it will trigger the MPAA

This may not matter to you

I am not considering taking the 25% tax free lump sum in one go.  If I withdraw a total of £18k in one go in in a year (25% tax free), is there any practical difference to taking 12 instalments of £1500 (each 25% tax free)

Broadly you can do this with either method excepting that many DIY/SIPP pension providers do not offer automated UFPLS (HL do not) and you would need to submit a request each time. For me that would be a big practical difference

Additionally there is the matter of the mechanics of taxation. Pensions use PAYE and, like with earned income, expect a similar amount to be paid monthly and deduct tax based on your personal allowance/tax code in 1/12ths. If you take a large payment in one month and none in others then more tax could be deducted in that month than is required annually. This will all come out in the wash at the end of the year and you will be no worse off but is a complication I am happy to live without