UPFLS versus Drawdown

magd36

Juno_Moneta said:

poseidon1 said:

The  current maximum permitted  (unprotected) TFC is £268k, so UFPLSs is a mechanism for someone in my position to try and hit that limit whilst still drawing an income.

I think poseidon1 hits the nail on the head here. 

I think you and poseidon1 have a point but I just don't understand it. Why can't you use drawdown to do exactly the same thing? What stops you using drawdown to achieve this or rather what feature does UFPLS have that drawdown doesn't? Also surely the MPAA is triggered when you start taking an income.

magd36

dunstonh said:

If your pension doesn't have the functionality you are after, then move it to one that does, unless there is some contractual reason for holding back.

Unfortunately, I don't have the confidence or knowledge to move my pension and advisors charge 2% of the pot (£5k) to do so.

MarlowMallard

ali_bear said:

Let's not forget that one of the political parties could make a manifesto commitment to abolish the TFC limit. Personally I think this outcome is just as likely or unlikely as it being reduced. 

Peronally I think abolition of TFC is highly unlikely. There's a large cohort of modest earners planning to use say £50k TFC to pay off the remaining mortgage, who would be seriously screwed by this, and rightly furious.  If they cut the TFC limit to £100k, it might be argued that someone with a pot substantially over £400k can afford to take the hit.  

Albermarle

MarlowMallard said:

ali_bear said:

Let's not forget that one of the political parties could make a manifesto commitment to abolish the TFC limit. Personally I think this outcome is just as likely or unlikely as it being reduced. 

Peronally I think abolition of TFC is highly unlikely. There's a large cohort of modest earners planning to use say £50k TFC to pay off the remaining mortgage, who would be seriously screwed by this, and rightly furious.  If they cut the TFC limit to £100k, it might be argued that someone with a pot substantially over £400k can afford to take the hit.  

Yes it would be extremely unpopular and would make saving into a pension a waste of time for most people.
The Chancellor has made it clear on several occasions that she is in support of people saving more into a pension, especially at the lower income end. So no chance the TFC will be abolished.
The upper limit is being eroded by inflation. Maybe worth about 25% less than it was a few years ago. 

ali_bear

Yes. I said it was in my opinion possible that the limit could be abolished. 

poseidon1

magd36 said:

Juno_Moneta said:

poseidon1 said:

The  current maximum permitted  (unprotected) TFC is £268k, so UFPLSs is a mechanism for someone in my position to try and hit that limit whilst still drawing an income.

I think p£10k oseidon1 hits the nail on the head here. 

I think you and poseidon1 have a point but I just don't understand it. Why can't you use drawdown to do exactly the same thing? What stops you using drawdown to achieve this or rather what feature does UFPLS have that drawdown doesn't? Also surely the MPAA is triggered when you start taking an income.

I think the brief article below  on how flexible access drawdown compares to UFPLS , sums up why UFPLS more appealing to me -

https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls/

With FAD, once 25% TFC of whatever amount you choose is taken, the associated 75% which has been crystallised and moved into drawdown can only ever be taken as future taxable income ( no more TFC possibilities thereon no matter how much it grows).

So for example if I took £10k as FAD (TFC), £30k then goes into drawdown as described above. If instead £10k were taken as UFPLS admittedly only £2.5k is tax free and £7.5k taxable, but I am happy to pay income tax in the hope of boosting my future tax free withdrawal potential from the remains of my 'unmolested' SIPP.

To be noted MPAA irrelevant to me ,already 10 years retired and have no intention of returning to work. However for those  for whom the MPAA is a consideration, FAD makes more sense as long as they realise they cannot touch a penny of the crystallised fund for the duration of their employment. UFPLSs by contrast are unsuitable for those who want to avoid MPAA.

Basically horses for courses , but good that these options exsist ( for now).

squirrelpie

UFPLS is just the limit case of FAD where you always take all the crystallised cash, both tax free and taxed. So there is nothing you can do with UFPLS that you can't do with a particular style of FAD withdrawals. It is convenient to have a name for that special case, perhaps.

phlebas192

poseidon1 said:

magd36 said:

Juno_Moneta said:

poseidon1 said:

The  current maximum permitted  (unprotected) TFC is £268k, so UFPLSs is a mechanism for someone in my position to try and hit that limit whilst still drawing an income.

I think p£10k oseidon1 hits the nail on the head here. 

I think you and poseidon1 have a point but I just don't understand it. Why can't you use drawdown to do exactly the same thing? What stops you using drawdown to achieve this or rather what feature does UFPLS have that drawdown doesn't? Also surely the MPAA is triggered when you start taking an income.

I think the brief article below  on how flexible access drawdown compares to UFPLS , sums up why UFPLS more appealing to me -

https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls/

With FAD, once 25% TFC of whatever amount you choose is taken, the associated 75% which has been crystallised and moved into drawdown can only ever be taken as future taxable income ( no more TFC possibilities thereon no matter how much it grows).

So for example if I took £10k as FAD (TFC), £30k then goes into drawdown as described above. If instead £10k were taken as UFPLS admittedly only £2.5k is tax free and £7.5k taxable, but I am happy to pay income tax in the hope of boosting my future tax free withdrawal potential from the remains of my 'unmolested' SIPP.

To be noted MPAA irrelevant to me ,already 10 years retired and have no intention of returning to work. However for those  for whom the MPAA is a consideration, FAD makes more sense as long as they realise they cannot touch a penny of the crystallised fund for the duration of their employment. UFPLSs by contrast are unsuitable for those who want to avoid MPAA.

Basically horses for courses , but good that these options exsist ( for now).

The bold bit isn't a valid comparison. You should either compare crystallising £40k via both UFPLS and flexi-drawdown or crystallising £10k with both. eg using the second case, UFPLS gives you £2.5k tax free and £7.5k that is taxed as though you were getting that much every month for the rest of the year so is likely to result in more tax being paid and needing to be reclaimed. With flexi-drawdown you also get £2.5k tax free and you can either take the taxable part immediately or choose to spread it out over several months to avoid needing to reclaim the tax.

UFPLS is just a particular case of flexi-drawdown, not something fundamentally different.

GenX0212

So for example if I took £10k as FAD (TFC), £30k then goes into drawdown as described above. If instead £10k were taken as UFPLS admittedly only £2.5k is tax free and £7.5k taxable, but I am happy to pay income tax in the hope of boosting my future tax free withdrawal potential from the remains of my 'unmolested' SIPP.

But taking £2.5k as FAD and withdrawing £7.5k from the drawdown account would be exactly the same wouldn't it?
With FAD you have the option to choose to take larger sums tax-free to avoid inadvertently pushing yourself into a higher rate tax band?

DRS1

For some reason I imagine that with FAD people take the tax free cash but leave the taxable bit behind in the pension drawdown account because they don't want to pay any tax or trigger the MPAA.

I thought UFPLS was used by people who have some spare personal allowance and wanted to take taxable income to use up the spare 0% tax band.