Pension Drawdown – UFPLS (uncrystallised funds pension lump sum)

Pension Drawdown - UFPLS
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17 Responses

  1. Hi Mike,

    Thanks for sharing this – I also look forward to seeing how it goes over the next few years. Your approach is pretty much what I had in mind for what I would do when I can access my pension (granted, some years away so I expect the rules to have changed by then!).
    Best thing you can do to minimise the tax as best you can!

  2. Andrew says:

    Hi Mike
    Informative, step-by-step post – thanks.

    I am still unsure over the Lifetime Allowance and had not really taken on board that it includes growth as well as contributions.

    Putting aside UFPLS for the moment (another thing I’m not really sure of) then is the following correct?

    say at age 55, take SIPP as pension (drawdown) and value is £500,000
    aim is to invest in a portfolio that pays 4% (say) i.e. 20k p.a. as an income
    if we assume that the growth of the underlying investments is also 4%, then:

    LTA tested at age 55, and is £500k; this is 50% of the LTA (not quite sure how the % comes into play…)
    LTA tested at age 75 and, if annual growth of 4% p.a. then value of SIPPS would be £1,095,562

    So…if the LTA cap is kept at £1m then would this be £95,562 ‘excess’? If so, would it be taxed at 55% i.e. charge of £52,559 on your 75th birthday?

    Apologies if I’ve missed something but any clarification would be helpful. Thanks again.

    • Mike Rawson says:

      Hi Andrew,

      It’s not so much assessed on the growth as on the withdrawals. The post explains how it has worked for me (using UFPLS).

      Let’s say you take out £50K one year and your LTA is £1M. That uses up 5% of your LTA, and the pension firm sends you a letter to tell you that.

      Next year all the limits have gone up a few percent, and you take out £51K. But the LTA has risen (inflation-linked from next year) to £1.02M.

      So you’ve taken another 5% and now you’ve used up 10% across both years. So unless you take large lump sums, you won’t hit the point where you get taxed for around 20 years.

      I’m not aware that there is a check on your 75th birthday but I wouldn’t rule it out.

      DB pensions are assessed at a (very generous) multiple of 20 times the annual payment. So if you have a DB pension of £50K you hit the limit straightaway,

      Hope that helps.



  3. Tim says:

    Just stumbled across your website which is incredibly informative – a big thank you for taking the time to maintain this.

    One question – I don’t fully understand the difference between the UFPLS and flexi drawdown and therefore why you have chosen UFPLS?

    I thought you could achieve exactly the same result with the latter and have more control as to the proportions that you take as income? The UFPLS route is fixed at 25:75%?

    • Mike Rawson says:

      Hi Tim,

      I guess you could technically achieve any mix with flexi-drawdown, but what most people do is take the 25% tax-free cash lump sum straight away and then convert the other 75% into a regular income (at say 4% pa, though I think that rate is too high to be safe). At the moment, I don’t need the regular income and I have no use for the tax-free lump sum.

      At the same time, I don’t trust pension regulation, and the 20% tax allowance can’t be rolled over to future tax years. So UFPLS gets me £50K out each year at a low marginal tax rate, and in a single annual transaction.

      It’s quite possible that I will switch to flexi-drawdown at some point in the next 10 years, if I can find a good home for the tax-free lump sum. A crash in the price of seaside cottages is one scenario. I plan to review my situation once a year, between Jan and March.


  4. Tim says:

    Thanks – my reason for asking is that I’ve just transferred out of a DB scheme and am now in the lucky position of having an LTA exposure to mange at 55 (5 years away). This is courtesy of a crazy multiple of 43x annual pension. Why trustees seem obliged to match current annuity rates to calculate transfer values is beyond me but I cant complain! I couldn’t agree more with your thoughts of being wary of bonds at the moment…

    Reached the same conclusion as you, crystallise @£57kpa to remain a basic rate tax payer unless I have need for a lump sum. Re Andrew’s post, from what I gather there is an additional LTA test at 75. As I understand it, this test is applied to any uncrystallised funds plus the growth in the crystallsied funds assuming you have not already taken this as income and paid tax.

    This is all far from simple…but also stimulating!

    • Mike Rawson says:

      Well done on getting 43 times income. I only have 6% of my net worth in DB pensions, so my instinct is to keep hold of it as a safe bond proxy. But that conversion rate does make you think twice.

      I think you are right about the LTA at 75. My hope is that they will have abolished the LTA by then.

      I can feel a follow-up post coming on – about the future tax situations of the drawdown vs. UFPLS routes.



  5. Paul knight says:

    Great article – I’d be very interested to hear your thoughts on how you’d approach a situation like mine.

    I have a 400k sipp and a 18k a yr deferred pension which is payable I reduced at 55. If I took the cetv from this my pot wood be circa 960k with approx 18 months to go until I’m 55.

    Like you I’d planned to manage things to stay in lower rate tax but I have a few properties so I’m hit by section 24 and so could easily get pushed into higher rate but conversely if I don’t start drawing I run the risk of heavy tax by breaching LA ( I don’t meet any protection criteria sadly !)

    Thanks in advance

  6. Tom K says:

    Really helpful post, thanks for taking the time to do this. Would interested to hear when (if) you change tacks to using FAD

    • Mike Rawson says:

      Thanks Tom. I’m sticking with UFPLS for this tax year.

      My current plan is to switch to flexi-drawdown when / if I need the tax-free lump sum, or when my portfolio grows so quickly that I threaten my (protected) LTA.

  7. Jim MCG says:

    Thanks for posting Mike, I’ll be coming back to study this in detail. I’ve just turned 54 and have a vague intention of starting to take from one of my pension funds in a year’s time. Wouldn’t it be great if it was just dead simple? But, as you show above, it’s far from it! However, I’m telling myself it will be “fun” trying to work out a good strategy for myself before next November.

    • Mike Rawson says:

      You’re welcome. UFPLS is okay in itself. The two drawbacks are all the forms you have to fill in, and the massive upfront tax they deduct (which I had to reclaim through my Self Assessment).

      You’ve reminded me that I have to go through the whole process again next month.



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Pension Drawdown – UFPLS (uncrystallised funds pension lump sum)…

by Mike Rawson time to read: 6 min