Suggestions

:speech_balloon:

Uk workplace pensions should support 25% tax free on each withdrawal (UFPLS)

With many UK defined contribution schemes, there is an option to withdraw using Uncrystallised Funds Pension Lump Sum (UFPLS).

When UFPLS is used, 25% of each withdrawal* is tax-free and the remaining 75% is taxed as income.

Currently ProjectionLab only supports withdrawing tax free cash first, and once all the tax free cash has been taken, then all remaining income is 100% taxable.

  • there is a lifetime limit to the amount of tax-free cash which can be drawn, across all retirement accounts, which is currently £268,275. Once this limit is exceeded all future withdrawals are 100% taxable.

Related: www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75420

10 votes

Tagged as Suggestion

Suggested 09 August 2023 by user Jonesy

  • Sign in to comment and vote. Sign in by email

  • 09 August 2023 Jonesy suggested this task

  • 10 August 2023 Kyle Nolan approved this task

  • avatar
    Michael Cox

    Actually the more general case would be to allow each year to specify the percentage of taxable and non taxable pension income as an advanced tweak. UFPLS and all tax free first are just two special cases. “Flexi access drawdown” allows a lot of flexibility between these two options

    It would be cool to be able to compare different drawdown strategies and the tax implications of each on any one year.

    02 September 2023
  • avatar
    Michael Cox

    The mentioned £268275 total tax free cash applies to the 25% tax free lump sums from all DC pensions AND any optional tax free lump sum you might take from a DB pension even though if you tool the DB pension as income only NONE of it would be tax free.

    06 September 2023
  • avatar
    Jonathan Perkins

    The £268,275 will apply from April 2024 when the lifetime allowance is also abolished.

    The setting in Projection Lab doesn’t appear to lock the amount of tax free cash at the crystalisation point (if less than £268275) and it would be good to have the setting (once that amount kicks in next year)

    05 December 2023
  • avatar
    James Atkin

    You can take £16760 a year tax free. 25% (4190) tax free leaving £12570 which is exactly the income tax threshold so you won’t pay any. Would be great to model this in PL somehow.

    12 March
  • avatar
    Pritam Poojari
    James Atkin: You can take £16760 …

    Would get great to have this feature added.

    11 April