If you have saved in a private pension plan (such as a Personal Pension Plan, Stakeholder Pension Plan or a Self-Invested Personal Pension Plan) and have attained at least age 55, then a UFPLS is something you might consider.
UFPLS stands for “Uncrystallised Fund Pension Lump Sum” which is government jargon describing one of the ways that you might take benefits from your plan. Imagine you have saved hard over time and accumulated a pension pot of £100,000. You have decided to start to take the benefits from that plan.
While it is called a pension plan, it doesn’t have to be about retirement. There is no reason why you cannot take the benefits from a pension plan and continue to work. You do though need to consider the income tax consequences of doing this. Part of your “pension pot” typically 25% (or £25,000 in our example) can be taken as a tax-free cash lump sum. You can do what you wish with this money; spend it, save it or give it away, perhaps to help the next generation onto the property ladder.
The rest of the pension pot (£75,000 in our example) is subject to income tax at the marginal rate of income tax that you pay. If you have no other income, then £12,500 in the current tax year (2019/20) is inside your personal income tax allowance and escapes income tax entirely (although the HMRC tax system is such that when you take that benefit, it may well be subject to income tax and you may have to claim it back!)
You might decide to take some of your entitlement to a tax-free cash lump sum (you don’t have to take the whole amount in one go) and combine it with some of the taxable element (even if you don’t pay tax on it).
This approach is referred to as an Uncrystalised Fund Pension Lump Sum, a bit of a mouthful but better remembered perhaps if you think about it as taking your benefits in instalments, or phased retirement.
What you don’t take as a lump sum remains invested in your pension pot for the future. Other alternatives you might consider include;
- Deferring taking any benefits until a later date;
- Just taking some or all of your entitlement to a tax-free cash lump sum;
- Buying an annuity, which provides a guaranteed income for life; or
- Flexible access drawdown where you take as much or as little as you like from your pension pot.
Your current pension plan provider may allow some, or all of these; alternatively, you may choose to transfer your pension pot to a new plan that facilitates these options.
Taking flexible benefits such as a UFPLS can be very useful. For example, if you are a few years away from receiving your State Pension or other pension benefits, and you want just enough for early retirement.
We recommend you seek professional advice before you make a final decision on which options are best for you.