Please remember, SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial advisor before making any decisions. Pension and tax rules depend on your circumstances and may change in future.
What is UFPLS?
UFPLS – or Uncrystallised Funds Pension Lump Sum to give it its full name – is a flexible way to take a lump sum from your pension.
It might sound confusing – and impossible to pronounce – but it’s actually quite straightforward.
Its flexibility means an UFPLS may be worth considering if you need access to a lump sum but you haven’t yet decided how you’d like to access your pension in the long term. It can also be an option if you have a small pension pot, especially where it might not be worth buying an annuity or setting up drawdown.
How does UFPLS work?
You decide how much you want to take each time. The first 25% of each amount is tax-free, subject to a maximum of £268,275, and the rest is taxed as income.
You don’t have to take your whole pension this way. You could also take some of your pension using drawdown and/or as an annuity.
UFPLS: a simple example
John has a pension worth £600,000. He decides to take a £30,000 UFPLS lump sum, leaving £570,000 in his pension.
- The first 25% (£7,500) of this lump sum is tax-free.
- The remaining £22,500 is taxed like normal income.
John can take another lump sum at any time - or choose an alternative option, such as drawdown or an annuity.
How to take UFPLS from your ii SIPP
There are no charges for taking a lump sum UFPLS payment with ii. It's all covered by your monthly SIPP fee.
- You can now take a lump sum UFPLS payment using your online account.
- You’ll need to follow the process every time you want to take a lump sum.
- The process should take around 30 minutes. It usually takes no more than 10 working days after this to receive your payment.
- Click here for a step-by-step guide on how to take an UFPLS lump sum payment online.
How is UFPLS taxed?
The first 25% of each UFPLS payment is tax-free, subject to a maximum of £268,275. The remaining amount is taxed like normal income:
- If you have no income from any other sources, the first £12,570 is tax-free.
- 20% on income between £12,570 and £50,270.
- 40% on income between £50,270 to £125,140.
- 45% on income above £125,140.
Tax on your first UFPLS
When you first take an UFPLS, you will usually be given an emergency tax code, unless your pension provider holds an up-to-date tax code for you.
This emergency tax code will treat the UFPLS as an income that will continue to be paid each month. This means it is likely to result in an overpayment of tax when you make this first withdrawal.
If this happens, you can claim back the overpaid tax from HMRC using its online service or form P55.
You can take an UFPLS from your pension once you reach age 55 (57 from 2028).
There is no limit to the number of times you can take an UFPLS from your pension. As long as you have funds remaining which have not been moved into drawdown, you can take an UFPLS.
There are a few risks to consider before taking UFPLS.
It may be attractive to take an UFPLS from your pension but you need to consider the tax position. As at least 75% of it is taxed as income, it could push you into a higher income tax bracket. Being able to spread pension income across tax years enables you to minimise the tax hit by taking advantage of multiple personal allowances.
Taking an UFPLS will also trigger the Money Purchase Annual Allowance, reducing your annual contribution allowance to the lower of £10,000 and your annual income. This might not be an issue if you no longer want to contribute to your pension but, if you are still working and building your pension savings, this lower contribution allowance could affect your plans.
The main difference is flexibility.
- With drawdown, you start by taking up to 25% of your chosen amount as a tax-free lump sum, subject to the £268,275 maximum. The remaining 75% sits in a drawdown pot, ready to be taken as income when you need it.
- For example, you could move £40,000 into drawdown. You would get a £10,000 tax-free lump sum, and then you could take the remaining £30,000 in regular monthly payments of £1,000 (minus income tax).
- With UFPLS, you take the entire chosen amount in one go. 25% is tax-free (subject to the £268,275 maximum), but you receive the remaining 75% at the same time.
- For example, if you took £40,000 as an UFPLS, you would receive 25% of it tax-free – £10,000. The other £30,000 would be treated as income and taxed accordingly.
Uncrystallised Funds Pension Lump Sums (UFPLS) are taken from your Uncrystallised non-drawdown funds. Each time you take an UFPLS payment, we will recalculate the notional split between drawdown and non-drawdown funds in your account.
Getting financial advice
The way you access your pension could affect your standard of living during retirement so we recommend seeking professional financial advice. An independent financial adviser will be able to assess your circumstances and recommend the most appropriate action to achieve your goals.
How can Pension Wise help?
If you have a defined contribution pension scheme and are 50 or over, then you can access free, impartial guidance on your pension options by booking a face to face or telephone appointment with Pension Wise, a service from MoneyHelper.
If you are under 50, you can still access free, impartial help and information about your pensions from MoneyHelper.
What are the alternatives to UFPLS?
There are two other ways you could take an income from your pension.
Allows you to take up to 25% of your pension tax-free (subject to a maximum of £268,275), and set up regular or one-off income payments for the rest. Learn more.
Gives you a guaranteed income in return for some or all of your pension. Learn more.
You are free to use one of more of these options when accessing your pension, with choices determined by factors such as the size of your pension, income requirements and your tax position.