Pensionbee and Flexi-Access Drawdown

I know I have asked about this before but I thought I had sussed it out but Pensionbee has confused me. The background is that, age 61, I am taking early retirement in two weeks. I already have in payment a LGPS pension which started when I was 60. I also have another deferred DB pension which I do not want to take for two or three years as, taking it early reduces the annual amount. However I have a DC pension from my current employer, which I leave in two weeks. When all the contributions are invested it will only amount to around £8500. The scheme (The Pension Trust Growth Plan 4) is very inflexible and the only options are to withdraw it all, purchase an annuity or transfer elsewhere.

As a result I have been investigating either flexi-access drawdown or uncrystallised UFPLS to take the small pot DC pension regularly over two years until it runs out. Everyone except Pensionbee has given me the same answer (which is what I believe to be true). HL very helpfully said:

With Flexible Drawdown you take your 25% tax free cash lump sum upfront. The remaining 75% of your pension then goes into a flexible drawdown account whereby it can be invested and you are also able to take a taxable income from there on an ad-hoc or regular basis.

If you were to take UFPLS withdrawals, each lump sum is 25% tax free and 75% taxable as income. You are not able to set up regular UFPLS withdrawals each month. Each time you take an UFPLS withdrawal you are required to complete an application form and view an illustration. The UFPLS application can then take between 5-10 working days to be proceed and the funds paid to your bank account.


However, Pensionbee said:


Flexi-access drawdown refers to the whole drawdown process, specifically being able to take out whatever sum you like, when you like. You can take out 25% of your entire pension, with the rest being subject to tax. It is up to you if you want to take out all 25% at once, or if you want to spread your tax-free cash out over a number of months/years.

For example, you could take out 2% in tax-free cash one month, followed by 3% tax-free and 5% taxable another month.

Bear in mind, if you take any taxable income, you will be subject to the MPAA (money purchase annual allowance), meaning you can't contribute more than £3,600 in a year.



Have I misunderstood what Pensionbee are saying as they seem to imply that I can go into flexi-access drawdown and take my 25% tax free amount over several months or as part of each regular withdrawal (as is the case for UFPLS). I thought I understood what I can and cannot do but Pensionbee seem to have confused me, or maybe I am missing something in what they have said.

Can anyone help please?
«1

Comments

  • cobson
    cobson Posts: 161
    First Anniversary First Post
    Forumite
    Different providers have different limitations on what can be done with their drawdown options. I think that Pensionbee’s product would be classed as phased flexi-access drawdown, some other providers only offer what Aviva would call single drawdown:

    http://www.aviva-for-advisers.co.uk/adviser/site/public/products/aviva-platform/income-drawdown
  • dunstonh
    dunstonh Posts: 116,037
    Name Dropper First Anniversary Combo Breaker First Post
    Forumite
    edited 19 May 2019 at 10:20AM
    Terminology is the issue here and its not consistent.
    With Flexible Drawdown you take your 25% tax free cash lump sum upfront. The remaining 75% of your pension then goes into a flexible drawdown account whereby it can be invested and you are also able to take a taxable income from there on an ad-hoc or regular basis.

    That is a conventional drawdown.
    Flexi-access drawdown refers to the whole drawdown process, specifically being able to take out whatever sum you like, when you like. You can take out 25% of your entire pension, with the rest being subject to tax. It is up to you if you want to take out all 25% at once, or if you want to spread your tax-free cash out over a number of months/years.

    The latter is phased drawdown. i.e. no tax free cash taken up front but each withdrawal is paid as 25% tax free, 75% taxable. This is a very popular method with those that actually research their needs. Although people taking the 25% up front still outnumbers it. However, that is largely due to lack of knowledge and people wanting cash.
    Have I misunderstood what Pensionbee are saying as they seem to imply that I can go into flexi-access drawdown and take my 25% tax free amount over several months or as part of each regular withdrawal (as is the case for UFPLS).

    Again, terminology.

    Your pension is made up of two segments. Uncrystallised funds and crystallised funds. Your pension starts as uncrystallised funds. If you need money out, you then crystallise some or all of the pension.

    If you crystalise the whole fund you will have no uncrystallised funds left. With that method, you take the 25% TFC fully up front.

    If you crystallise part of the pension, you only take 25% on the part your have crystallised and the remaining part stays as uncrystallised to use later.

    e..g Uncrystallised fund of £100,000. You want £5,000.
    Options are:
    1 - crystallise £20,000 of the pension of which £5,000 is tax free and the other £15,000 stays in the pension in the crystallised part of the pension whilst £80,000 is uncrystallised.
    2 - crystallise £5,000 of which £1250 is tax free and rest if taxable. Nothing moved into the crystallised part of the pension as its been drawn and the remaining fund is uncrystallised. (method useful for when you are non-taxpayer and the amount is within your personal allowance)
    3 - As number 2 but slightly increase the amount draw to account for tax on the 75% part so you get a net £5,000 after tax.
    4 - draw the whole 25% on the whole uncrystallised pot which gives you £25,000 and leaves nothing uncrystallised.

    Method 4 is the most used but it also likely to be the wrong method for a good chunk of those.

    There are also variations and combinations of the above possible. e.g. setting up a monthly regular income of £x where 25% is tax free and 75% taxable. It doesnt need to be lump sum.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Malchester
    Malchester Posts: 860
    Photogenic First Anniversary First Post Name Dropper
    Forumite
    Thanks Dunstonh. You have made it very clear, as always. Very helpful. Phased drawdown is just what I want to do over the next two years.
  • Albermarle
    Albermarle Posts: 21,632
    First Anniversary First Post Name Dropper
    Forumite
    2 - crystallise £5,000 of which £1250 is tax free and rest if taxable. Nothing moved into the crystallised part of the pension as its been drawn and the remaining fund is uncrystallised. (method useful for when you are non-taxpayer and the amount is within your personal allowance)
    Isn't this effectively the same as UFPLS ?
  • dunstonh
    dunstonh Posts: 116,037
    Name Dropper First Anniversary Combo Breaker First Post
    Forumite
    Albermarle wrote: »
    Isn't this effectively the same as UFPLS ?

    It is UFPLS. But I needed to include it in the scenario to meet the objective (as well as including method 4 which would be unsuitable for the objective as it draws more than needed but it is used by people who dont realise they didnt need to do that).

    Aviva call UFPLS drawdown but they dont actually support regular income drawdown.

    The terminology used by providers and others is a bit all over the place at the moment.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Albermarle
    Albermarle Posts: 21,632
    First Anniversary First Post Name Dropper
    Forumite
    The terminology used by providers and others is a bit all over the place at the moment.
    Yes, Scottish widows call UFPLS - Partial Pension Encashment
  • ColdIron
    ColdIron Posts: 8,899
    First Anniversary Name Dropper Photogenic First Post
    Forumite
    Or FLUMP ..
  • wjr4
    wjr4 Posts: 1,108
    First Anniversary First Post Name Dropper Combo Breaker
    Forumite
    Malchester wrote: »
    However, Pensionbee said:
    Bear in mind, if you take any taxable income, you will be subject to the MPAA (money purchase annual allowance), meaning you can't contribute more than £3,600 in a year.
    It's actually £4,000 gross pa (£3,200 net) for the MPAA, £3600 gross pa if you are a non-tax payer.
    I am an Independent Financial Adviser (IFA). Any posts on here are for information and discussion purposes only and should not be seen as financial advice.
  • grnglide
    grnglide Posts: 171 Forumite
    edited 20 May 2019 at 2:18PM
    , £3600 gross pa if you are a non-tax payer.
    It is nothing to do with whether or not you pay any tax.


    If your qualifying earnings are less than £3,600 you can pay in £3,600 gross (£2,880 net of tax).
  • wjr4
    wjr4 Posts: 1,108
    First Anniversary First Post Name Dropper Combo Breaker
    Forumite
    grnglide wrote: »
    It is nothing to do with whether or not you pay any tax.


    If your qualifying earnings are less than £3,600 you can pay in £3,600 gross (£2,880 net of tax).
    Not in employment then... I know what I meant.
    I am an Independent Financial Adviser (IFA). Any posts on here are for information and discussion purposes only and should not be seen as financial advice.
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards