A few weeks ago I did a video explaining the differences between the main modes of taking pension benefits – annuity, drawdown and UFPLS. I also did a video giving some examples of these, and I want to do so again, this time, with a bit of a difference.
#annuity #drawdown #ufpls
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When it comes to retirement planning, there are several options available to individuals looking to access their pension savings. Three common options are Drawdown, UFPLS (Uncrystallised Funds Pension Lump Sum), and Annuity. Each of these options has its own features and benefits, and it’s important to understand them in order to make an informed decision about how to access your pension savings.
Drawdown is a flexible way to access your pension savings while keeping the remainder of your savings invested. With Drawdown, you can take an income from your pension savings while leaving the rest invested, potentially allowing for further growth. There are no limits on the amount of income you can take from your pension pot, but it’s important to be mindful of the potential impact on the longevity of your savings. Drawdown also allows for flexibility in terms of how and when you take your income, making it a popular choice for those looking for a flexible retirement income solution.
UFPLS, on the other hand, allows you to take ad hoc lump sum withdrawals from your pension savings. You can take up to 25% of your pension pot tax-free, with the remainder subject to income tax at your marginal rate. UFPLS offers the flexibility of taking lump sum withdrawals when needed, without the need to commit to a regular income stream. It’s important to consider the tax implications of UFPLS before making any withdrawals, as taking large lump sums could potentially push you into a higher tax bracket.
Annuities provide a guaranteed income for life, in exchange for a lump sum payment from your pension savings. Annuities offer the security of a regular income stream without the need to worry about investment performance or managing your own withdrawals. However, they also lack the flexibility of Drawdown or UFPLS, and once you purchase an annuity, you are locked into that income stream for life.
Ultimately, the best option for accessing your pension savings will depend on your individual circumstances and preferences. It’s important to carefully consider the features and benefits of each option, and to seek professional financial advice to help you make the right decision for your retirement. Whether you opt for Drawdown, UFPLS, or Annuity, the most important thing is to ensure that you have a secure and sustainable retirement income that meets your needs.
Really good explanation. Was getting mixed up on UF+. This makes sense – thank you.
Very helpful. Thanks. I wonder what would a person do if they had the bulk of their money – as they approach retirement – not in a pension fund at all but in (non-ISA) index funds? (They might, for example, have the UK state pension plus a tiny private pension to look forward to on retirement.) Anyhow, how would such a person with lots of shares avoid paying shed loads of tax? Have you done a video on this scenario? I'd be interested to know your thoughts. Ta!
Hi Pete, if i take tax free cash from my pot and the remaining balance goes into a drawdown account… can i carry on adding pension contributions to the drawdown account – providing i dont actually start to drawdown any income?
Thank you for this and all the many other videos I have watched where you have made complicated subject matter easier to understand all done with a very friendly personable delivery style. You really are the best for putting things in easy to understand chunks.
I have never understood drawdown and now I understand why I didn't, I had no knowledge of the drawdown pot.
I do have a question … UFPLS seems the best solution for me but instinctively I think if the government is offering a 25% tax free amount I should bag the whole lot before they change their mind. So my question is whether such a change is likely or even allowed e.g. is it written into law so it couldn't be changed overnight so as soon as you/I got an inkling it might happen we would then have a window of opportunity big enough to bag the whole lot?
Great video, Going to-do the ufpls, Do all Pension Providers support this ?
Why would anyone take a drawdown instead of UFPLS? I can’t see any advantage of the drawdown.
Hi Pete, I have been watching your videos for a long time. I’ve recently turned 60 and was thinking of using my company pension to retire early and use the money until my state pension kicks in. What is the best option to save paying tax ? Do you think I will need financial advice ?
My question is. If you take out your pension as Drawdown, do you still pay your pension provider regular Management fees?
Hi Pete. Really really helpful video to explain the differences. Thanks. So is there any real benefit to Drawdown over UFPLS? It sounds like UFPLS does everything that Drawdown allows but without the administrative hassle?
Well explained 🙂
Well done for covering UFPLS, more people should know about it. Have you done a video on the combining of pension pots? I think there's a lot of misleading advertisings that pressures people to do so.
Great video, a generic issue regarding annuities.
I assume it will be possible to employ a percentage of my SIPP to buy an annuity at different points in the future. For instance from a 100K SIPP, at 55, 33% to buy an annuity, maybe at 60 buy use 33% (based on the current pot) to buy another one, etc. Always reviewing at each stage my personal circumstances and trying to get the best deal from different providers.
Any restrictions or limitations I need to be aware of when buy an annuity from a SIPP? Age? Amount? Number of annuities at the same time?
Hi Pete, these examples are very helpful thanks. If Daniel didn't have State Pension (or any other income) could he take the £37500 lump sum plus another £12570 without incurring tax?
Hi Pete, I don’t understand why anyone would invest an inheritance in a pension? It’s tax free once received from the estate, only the income would be taxed and that could be ISA sheltered. By putting an inheritance in to a pension surely you’re voluntarily making 75% of that capital taxable as income when drawn from the fund? Or am I losing it?
Pedant here. I am currently aged 64 like in your example and our state retirement age is 66. We are going to have to get used to it not being 65 unfortunately.
Fantastic content as always , would you consider talking about the pros and cons of combining pensions. I personally have four separate ones and realy feel I should be combining them all. I am 52 so a way to go before I retire but its constantly on my mind. Keep up the great content.
Brilliant cheers Pete
Great video pretty much answers my thoughts from your earlier video. Thank you
Hi Pete- As i understand it:– if I take UFPLUS I wont trigger MPAA (Hurrah!) but- I lose the rights to benefit from my pension provider (I have a very good pension provider who put a lot in monthly)
so will a small tax free lump sum end my benefits from my current pension?
thank you
John
This was really helpful Pete, thank you for producing the explanation on this video.