What is this option?
This option, also known as an Uncrystallised Fund Pension Lump Sum (UFPLS), allows you to take lump sums from age 55, as and when you need to, while the balance remains invested.
Each lump sum you take must be at least £1000 and only a minimum of £1000 can be left in the policy.
If your policy has a guarantee such as a Guaranteed Minimum Pension this option is not available to you. You would have to transfer to another provider and give up your guarantee. Please see the section, Safeguarded Benefits, below.
If you start taking your pension pot as a number of lump sums, the tax relief you are entitled to each year on any future pension savings will be restricted to the amount of the ‘Money Purchase Annual Allowance’ (MPAA), currently £4,000 per annum, and you’ll be charged additional Income Tax on contributions in excess of this. Your future pension savings to which the limit applies, include contributions paid by you and/ or your employer into a defined contribution pension (i.e. a pension other than a scheme that pays you benefits based directly upon your salary and service). You should consider this carefully if you intend to continue saving for your retirement after taking this type of lump sum.
What is this option?
This option allows you to move your money into a pension pot and take lump sums from it as and when you need to, while the balance remains invested.
If you start taking your pension pot as a number of lump sums, the tax relief you are entitled to each year on any future pension savings will be restricted to the amount of the ‘Money Purchase Annual Allowance’ (MPAA), currently £4,000 per annum, and you’ll be charged additional Income Tax on contributions in excess of this. Your future pension savings to which the limit applies, include contributions paid by you and/ or your employer into a defined contribution pension (i.e. a pension other than a scheme that pays you benefits based directly upon your salary and service). You should consider this carefully if you intend to continue saving for your retirement after you start taking your pension pot as a number of lump sums.
Each time you take a lump sum from your pension pot, 25% (one quarter) will be paid tax free and the other 75% (three quarters) will be taxable as income.
Each taxable lump sum may increase your overall income such that you will need to pay some tax, even if your income is normally too low to pay tax. If you already pay tax on your income, you may find that the tax on part of your overall income in the tax years that you take any lump sums is charged at a higher rate of Income Tax than you normally pay.
Income Tax will be deducted from each taxable lump sum payment before you receive it, in accordance with HMRC rules. The tax that HMRC rules require to be deducted may be more or less than you owe. It will be your responsibility to contact HMRC to obtain a refund, or pay any additional tax due. If this option is allowed under your policy we will deduct Income Tax from your lump sum payment before you receive it, in accordance with HMRC rules.
If you take your pension pot as a number of lump sums, depending on your circumstances, you may create or increase any liability to Inheritance Tax that may apply on your death. You should consider seeking independent tax advice before making a decision.
Please bear in mind that the government may change tax rates and rules in the future.
Some pension pots contain ‘Safeguarded Benefits’, such as Guaranteed Minimum Pension, which provide a potentially valuable guarantee relating to the ‘income for life’ option. The guarantee may entitle you to receive an income for life that is higher than would normally be available. If your pension does contain a safeguarded benefit and you decide to transfer out to take up this option, we recommend you obtain professional advice before making a final decision that involves losing that guarantee. And if the value of the part of your pension pot that includes such a guarantee is more than £30,000, we are required to obtain confirmation from your adviser that you have received appropriate independent advice, before we may release any of that part of your pension pot to another provider to take as a number of lump sums.
Taking your pension pot in a number of lump sums could affect your entitlement to State benefits, now or in later life. If you are currently receiving State benefits and/or you expect to receive them in the future, you should check whether there may be a reduction in your entitlement to them if you choose to take your pension pot as a number of lump sums. There is more information about how obtaining lump sums can affect your State benefits at GOV.UK.
Any untouched part of your pension pot will pass to your beneficiary or estate. If you die before age 75, this will be paid tax free (provided the money is paid within two years of the provider being notified of your death). If you die at or after age 75, the untouched part of your pension pot will be added to the beneficiary’s other income and subject to Income Tax. If it is paid to your estate a 45% tax charge, known as a Special Lump Sum Death Benefit Charge, will be deducted.
Once you’ve taken this option you won’t be able to change your mind subsequently, so you need to be certain that it is the right choice for you.
Please read about Pension Scams and Pensions Advice.
Tap the options below for an overview of available options to you.
