APPROACHING
Uncrystallised funds pension lump
sum (UFPLS)
The new pension freedoms allow investors over the age of 55 to take lump
sums directly from their fund by way of an uncrystallised funds pension lump
sum (UFPLS).
A UFPLS allows access to your pension – and lets you
receive some of it tax free – while it remains invested.
There is a trade-off, as you lose your £40,000 annual
allowance and will only receive tax relief on future
contributions up to the amount of £10,000.
Remember, every time you remove money, it reduces
the value of the fund, generating less income in the
future. Consider how long your pension needs to last
and how reliant you may be on this fund. Although 25
per cent is tax free, the rest will be added to any other
income you receive that tax year. Large withdrawals
could push you into a higher tax bracket, and could
interfere with other benefits you may receive.
Without an original P45, your provider will deduct tax
at an emergency rate until it receives the correct code.
To reclaim this, you will need to apply to HMRC.
Overall, the tax advantages are considerable, as
the new flexibilities make pensions a useful
estate planning tool.
Death benefits are the same as for flexi-access. If you
die before you reach 75, the whole lot can be taken
either as cash or as drawdown – totally tax free – and
may be passed on to a beneficiary.
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After age 75, if paid as a lump sum before April 2016, it
will be taxed at 45 per cent. From the 2016/2017 tax
year, it will be liable to the highest marginal rate of the
beneficiary.
If passed on as a drawdown arrangement, the
income is treated like normal income and falls under
the income tax rules.
There is no limit to the amount you can withdraw at
any time, but fees will be levied on each occasion.
Not every provider offers UFPLS, which means you
may have to move your money if you wish to take
advantage of this product.
Key points
A UFPLS allows access to your pension
– and lets you receive some of it tax free –
while it remains invested
The trade-off is you lose your £40,000 annual
allowance and will only receive tax relief on
future contributions up to £10,000
Not every provider offers UFPLS, so you
may have to move your money to take
advantage of this product