Can I Buy a Pension Plan Myself?
Question asked by Scott Thompson
I’m interested in using one of my smaller pensions to take a few lump sums when I’m in retirement. Should I be looking at income drawdown or would this count as a UFPLS (and is this the same thing as a FLUMP)?
In April of 2015, Chancellor George Osborne’s much-trumpeted pension freedoms came into force. They provided a revamp to the UK’s pension regime and in doing so launched a new type of income drawdown.
By adding a raft of new access rights, the new rules replaced ‘flexible’ and ‘capped’ income drawdown with the new ‘flexi-access drawdown’. This confers great flexibility when it comes to taking lump sums.
You can choose to take up to 25% of your chosen pension pot as a tax-free lump sum (or more if you have a protected lump sum), or to take all of your pension pot in cash with the first 25% tax free, and pretty much anything in between, thanks to the flexibility it offers to choose your own level of withdrawals.
The new rules also introduced an alternative form of drawdown which focuses purely on lump sums. Unfortunately, it’s referred to as taking an uncrystallised funds pension lump sum or a UFPLS – which is quite a mouthful! (In this instance, ‘uncrystallised’ pension funds mean those that haven’t already been placed into drawdown.) For ease, numerous senior pension industry figures have now adopted the more user-friendly name of a ‘FLUMP’ (even though it’s not a perfect acronym).
With a FLUMP, each lump sum payment that’s drawn down will be 25% tax free, with the remainder subject to income tax at your marginal rate.