Flexible Pension Alternative - Uncrystallised Funds Pension Lump Sum (UFPLS).
Flexible pension drawdown rules started in April 2015.
Just because pension law allows flexible pension drawdown it does not mean that your pension scheme or pension company offers it.
- Your current pension scheme rules may not allow it.
- Your current pension company may not allow access to flexible access drawdown without advice.
- You may have to transfer to a new pension with the same company to access flexible drawdown.
- You may have to transfer to a new pension scheme with another pension company to access flexible drawdown.
There is an alternative: Uncrystallised Funds Pension Lump Sum (UFPLS)
This is a new concept that started in 2015. A lump sum drawn directly from uncrystallised money purchase pensions.
The lump sum is a combination of:
- 25% of the lump sum is paid tax-free.
- The balance of the lump sum is taxed at the member’s marginal rate of income tax.
It is possible to take a series of UFPLSs, each of which will be treated as a mix of 25% tax free cash and 75% taxable funds.
The disadvantage is that unlike flexible access drawdown, it isn’t possible to take the tax free cash without receiving taxable income.
Once an individual takes a UFPLS, the £10000 money purchase annual allowance applies i.e. the maximum total payments that can be paid into a pension fund for you each year reduces from £40000 to £10000.
Some restrictions apply to members with primary protection, enhanced protection or lifetime allowance enhancement factors affecting their tax free cash entitlement.