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UFPLS Explained

pensions & retirement

UFPLS Explained

Uncrystallised Funds Pension Lump Sums (UFPLS) allow you to take lump sums from your pension without entering drawdown. 

What is an uncrystallised funds pension lump sum (UFPLS)?

An uncrystallised funds pension lump sum (UFPLS) is a flexible way of taking a lump sum from your pension. You can take some or all of your pension as an UFPLS. 

25% of the lump sum is tax-free while the other 75% is taxed as income. The remaining money in your pension pot is not moved into drawdown – but can be at a later date.

Any part of your pension which has been ‘crystallised’ (moved into drawdown) cannot be taken as an UFPLS. 

An UFPLS can only be taken from a defined contribution pension scheme and not from a defined benefit scheme.

How does an UFPLS work?

If you take an UFPLS, you can choose how much of your pension to take as cash. Any funds which have not been crystallised (moved into drawdown) can be taken as a lump sum. 

For example, if you had a pension worth £100,000, you could choose to take £20,000 as an UFPLS. £5,000 (25%) of that lump sum would be tax-free. The other £15,000 (75%) would be taxed at your rate of income tax. 

That would leave £80,000 remaining in your pension pot which could be used in a number of ways. You might choose to leave the money uncrystallised or take further lump sums. Alternatively, you could move the remaining money into drawdown or use it to buy an annuity (with the option to take 25% of it as tax-free cash).

How is an UFPLS taxed?

Before taking an UFPLS, it is important to consider how it will affect your income tax rate. 

When you take an UFPLS, 25% is tax-free and 75% is taxed as regular income.

For example, if you took a £16,000 UFPLS, £4,000 would be tax-free. The other £12,000 would be taxed. This could push you into a higher tax bracket if it raises your total annual income above £50,000.

Income tax rates mean it may not be in your interest to take a large pension as one lump sum. If you took an entire £100,000 pension as a lump sum, you could receive £25,000 tax-free but £75,000 would be taxed. 

Your provider will deduct the tax before paying your UFPLS. Many providers will automatically use an emergency tax code. You can claim back any excess tax by contacting HMRC directly.
 

When can I take an UFPLS? 

You can take an UFPLS as soon as you are able to access benefits from your pension (currently when you turn 55). 

There is no limit to the amount of times you can take lump sums from your pension. As long as you have funds remaining which have not been moved into drawdown, you can take an UFPLS.

UFPLS vs drawdown

Alongside taking an UFPLS, you also have the options of moving into drawdown. 

Drawdown allows you to keep your money invested while withdrawing money when you need to. Whether you choose drawdown or an UFPLS, you can take 25% of your pension as tax-free cash. 

The following gives an example of each option with a £100,000 pension pot. 

Drawdown (fully crystallising)

  • Take 25% (£25,000) as tax-free cash.
  • Move remaining 75% (£75,000) into drawdown (taxed as income when withdrawn).

Flexi-access drawdown (partially crystallised)

  • Move a portion (eg £20,000) of your pension pot into drawdown.
  • Take 25% (£5,000) of that portion as tax-free cash. The rest (£15,000) goes into drawdown (taxed as income when withdrawn).
  • Remaining pension pot (£80,000) is available to move into drawdown or take as a UFPLS.

UFPLS (uncrystallised)

  • Take a portion (eg £20,000) of your pension as cash.
  • Take 25% (£5,000) of that portion as tax-free cash. Take 75% (£15,000) as taxed income.
  • Remaining pension pot (£80,000) is available to move into drawdown or take as a UFPLS.

Can I still pay into my pension after taking an UFPLS?

Taking an UFPLS triggers the Money Purchase Annual Allowance (MPAA) which reduces your annual allowance for pension contributions to £4,000.

UFPLS FAQs

Taking an UFPLS is a benefit crystallisation event (BCE) if you are under 75. A BCE measures the amount of pension benefits an individual has taken against their remaining lifetime allowance (LTA). 

An UFPLS does trigger the MPAA (Money Purchase Annual Allowance). This reduces your annual allowance for pension contributions to £4,000.

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