UFPLS or SPLS

shul558127

My FIL has recieved a letter from his pension company he has a pension that is being offered to him as either a UFPLS or SPLS the total pot is under 22k. The lump payment is 3k less if he takes it as a UFPLS and he pays more tax, nearly 6k instead of just over 3 under a SPLS payment. He is 80 this year and is not expecting any other pensions am I right in thinking he should take the larger SPLS payment as he is not expecting to take anymore lump sum payments in his lifetime, help would be great thankyou in advance 😊 

Dazed_and_C0nfused

shul558127 said:

My FIL has recieved a letter from his pension company he has a pension that is being offered to him as either a UFPLS or SPLS the total pot is under 22k. The lump payment is 3k less if he takes it as a UFPLS and he pays more tax, nearly 6k instead of just over 3 under a SPLS payment. He is 80 this year and is not expecting any other pensions am I right in thinking he should take the larger SPLS payment as he is not expecting to take anymore lump sum payments in his lifetime, help would be great thankyou in advance 😊 

SPLS is a new one on me but the pension company don't determine the actual tax that will end up being payable.

They just deduct an amount based on the tax code they have, either issued by HMRC or one required for first payments.

Can you clarify what SPLS??

shul558127

Hi and thankyou, apologies spls is small pot lump sum 

Dazed_and_C0nfused

So was this an old company/occupational  pension that is in payment and they are offering a one off payment and will then end future pension payments to him?

ader42

State Pension Lump Sum ?

I suspect FIL deferred his State Pension? 

shul558127

Yes, it's a private pension he didn't know about, nothing to do with his state pension, he has been given two options both are lump sum payments of the total pension pot but one (spls) is more in total 

Albermarle

The issue seems to be that with UFPLS, that he will pay more tax, as this is just the way tax codes work with one off payments. It is quite common to have to claim a tax refund after an UFPLS payment.

With the SPLS it looks like they are just deducting a straight 20% tax from the taxable sum.

It could well be that even with the SPLS, he may pay more tax than he should do. It depends on any other taxable income, like the state pension.

In the end he will get the same amount of money in his bank account either way, but seems it is better to have the SPLS and get most/all of it now, rather than paying more tax and claiming it back. 

molerat

As above, just the way the tax system is applied to the different methods of taking the pension.  UFPLS uses a 1257LM1 code and SPLS uses BR.  The tax due on the income will be the same but better to have the extra £2.5K in your pocket now and that may even be the correct tax situation anyway.