Drawdown, UFPLS or Annuity - EXAMPLES!
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- เผยแพร่เมื่อ 29 พ.ค. 2024
- 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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00:56 Annuity example
03:07 Drawdown example
04:44 UFPLS
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So clear and easy to understand, thank you. I am 63, on my own now and needing to make decisions and this has been so helpful and reassuring.
Very clear video...thanks!
The problem with taking an UFPLS is that an income is taken and so, forevermore, the pension holder would be limited to the MPAA reduced annual allowance or possibly the £3,600 pa, rather than the more generous £60,000pa Annual Allowance.
I add a like before I even watch your videos. That's how much I appreciate this channel.
Me too 🤨
And I appreciate you - thank you so much!
The best explanation and comparison of Drawdown and UFPLS that I've seen so far - and I've seen quite a few attempts on TH-cam
Very kind, thank you! 🙏🏻
Can you compare pros and cons of drawdown vs ufpls
This is a great video, showing i can make a couple of different options & make how I take money from different pensions & "be intentional", so that the pensions work for my needs. thanks Pete!
Very good you have made a big subject understandable. I wanted UFPLS as I only invest for income and just wanted to take the natural yield for my needs, and hopefully perhaps only take 80% and allow for some indexing. It then turned out after 20 years that I will never need to draw my pension and I have now passed LTA unscathed. My Sipp, ISA and taxable funds have all performed well over the same period. For the rest of my life I will only draw income from my taxable account and any capital I may need. The concept of making money from money rather than working is poorly understood. Living for today instead of tomorrow.
Thanks Pete!
Hope you don't take the comments made to heart too much
All the content you put out is top notch
Glad you seem to take it as feedback but hey, you know best! You're the chartered FA!
Great video as always and Im learning lots about drawdown! :)
Great video as always 👍
Great video pretty much answers my thoughts from your earlier video. Thank you
Really good explanation. Was getting mixed up on UF+. This makes sense - thank you.
Once again, very sage advise. Thank you.
Cheers, Adrian 🙏🏻
excellent video as always.
Cheers Kyle - appreciate it!
Great video and very informative. Many thanks.
Cheers Malcolm - glad it was useful
Great informative video, thanks.
Thank you! 🙏🏻
Brilliant cheers Pete
Thank you, Jane!
This was really helpful Pete, thank you for producing the explanation on this video.
Thanks Eddie - glad it was useful! 🙏🏻
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.
I liked before watching, as usual. Your videos are always useful. Thank you
Thank you Christine - I really appreciate it!
Hi Pete, could you please do a video on pros and cons of pension levelling please 🙏
Thanks
Thank God for DB pensions - increasingly rare though they are!
Yes in that their benefits outweigh what you have personally put in, but there is a lot less flexibility with how you access the money and inability to leave funds to beneficiaries
Thank you very much
You’re welcome, Nick 🙏🏻
Another cracking video. Always informative and helpful. UFPLS was a new one on me. Will need to get my head round it.
Just watched your video on UFPLS you made earlier re Annuity, drawdown and UFPLS. It was the uncrytalised money I was finding difficult to understand but the previous video did the job.
Thanks Pete, watching the second video with examples was really helpful in confirming my understanding of what is a complex subject. Where I do get confused is (as in my example) my options when you have a mix of DB. and DC. I have 16 years in a FS DB scheme (index linked final salary) and a further 6 years in (same company) in a DC scheme. how does that work and what things should I be considering? Many thanks.
I'm curious to see what an annuity may be worth for interest sake for my situation. Any recommended sites for annuity quotes that covers most of the providers?
Great video as usual!
Well explained :-)
Its like buying a car and adding the options you need Good video
Thanks for the scenario for the 150k pension pot. Having final salary and defined benefit pensions in the bag already, would you suggest topping up a private pension to potentially retire that slightly earlier than the standard state pension age. I do like the idea of UFPLS though
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!
Loving your vlogs. I’m 55 and have retired early, this information is extremely helpful, so thank you so much.
I’m glad, Darren - thank you!
Your final guy is going to be awful disappointed next year, when he turns 65 and has to wait another year for his state pension - he'll have to take another UFPLS! I started my state pension last year, and with only a few small dividends of other income, and taking nothing from my SIPP or ISA, I still managed to put about £2k into my SIPP (pre tax rebate)! Coming slowly out of lockdown probably helped, but I'm glad that I found you, so that I knew about the drawdown and UFPLS options. If I don't need to spend it yet, it can wait until I do.
Doh! You’re right of course - daft error on my part! Glad the content is useful though!
Realising it’s a minority audience, but a video for people who do not intend to draw from their pension fund at all and who’s sole objective is to pass the pension pot to children as efficiently as possible would be useful. Thanks!
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?
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.
Another great video, what I’m struggling with and maybe overthinking is that say I have £200k in pot but just need £25k (12.5%) cash tax free that I need to spend & not drawing anything else.
Do you move only £100k into drawdown pot or do rules mean you have to move the full £200k into drawdown and your other £25k is there to use at a later date. If left does it stay with the remaining main fund and £175k continues to grow. Tia
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?
I understand the three options that I can have with my pension pot, but what is confusing me now is what a drawdown investment will look like. What companies are the best for costs and what are the investment options for a retired person are the next questions.
I would think that investment options will vary for each person and their attitude to risk/volatility etc etc. Personally, I'm planning to continue investing in exactly the same funds once I reach retirement. Some companies promote a lifestyling approach when approaching retirement but this can often be detrimental to your portfolio. This is a view shared on the latest Money Maven podcast. Maybe it's better to always keep a couple of years living expenses in cash once in retirement? Then you won't be forced to sell investment funds during a bear market.
I’d agree with all this, Simon and I hope it answers your question, Alan. Which provider is best is down to your needs and retirement options and costs.
I got really excited the other week whilst talking to my accountant and telling them that I thought I’d found a way for people to have a tax free income in retirement. I explained my idea; the accountant wasn’t convinced but watching this, it turns out my idea was UFPLS. Not as clever as I thought I was 🤦♂️
Loving the videos Pete. Many thanks
If you came up with UFPLS on your own, Kevin, you’re a genius in my book!
@@MeaningfulMoney The mind went into overtime; what if both you and your partner could draw £16k using UFPLS? Need more? How about using your CGT allowance and/or ISA? The accountant just looked at me as if I’d gone mad! I think I might come back as a Chartered Financial Planner in the next life 😉
Im often amazed at how little accountants actually understand about the practical mechanics of these things…
Hi Pete, a quick question if you don't mind. Is it possible to go into drawdown and leave your fund invested and just withdraw the natural yield as a lump sum say once a year, thanks in advance 👍
Hi Pete,
One question I have is regarding the pot that’s left after taking part of your tax free sum.
Does the whole of this amount remain uncrystallised so can grow and generate another 25% tax free? Or do they crystallise part of the fund being the 75% part of the amount that allowed you the 25% hope you understand that. Eg take £20K then £60K crystallised.
Great video, enough said :D
Thank you 🙏🏻
UFPLS a revelation! Sounds ideal. Do all DC pot providers offer this? Sounds cheaper (possibly) than a drawdown account too? Thank you!! 😊😊
Nicely explained Pete, I do have a question. Lets assume Adam in your video did not need the UFPLS money last year but (like me) only took it to take advantage of the PA tax free cash element. Is that still a recommendation this year I wonder as the funds have nosedived over the past 6 months. It seems to be a general recommendation not to touch funds in decumulation when they are down? I'm thinking as Adam doesn't need the cash but still wants to take advantage of the tax free cash perhaps the balanced option is to move £16k into drawdown, take the tax free cash element and leave the rest invested in drawdown - is it possible after an UFPLS withdrawal previous year? Any thoughts on this? Hope that makes sense.
I think £16,760 might be one of my favourite numbers to remember (at least until the tax allowance changes).
You’d be amazed how quickly that goes out of my mind. I’ll probably have finally internalised it by the time they change the personal allowance
@@MeaningfulMoney which after the current PM election will probably not be long coming. Don’t think too many took in the frozen allowance until 2025
Same, I really like that ufplus idea. It means a couple can take roughly £33.5k tax free each year.
@@u3vs62cja only if they are not receiving any state pension / other earnings. UFPLS is a way to go if retiring early
@@guyr7351 yes good point!
Great video, Going to-do the ufpls, Do all Pension Providers support this ?
Most, not all.
Hi Pete. Absolutely love your content, keep it up.
A little question I have.
If I have a spare cash to invest each week, say £200. Is it best to put £100 into a SIPP & the other £100 into a S&S ISA.
Or put it all into the SIPP because of the tax relief. Thanks.
I think technically the most tax efficient way is to do it through a workplace pension (using salary sacrifice) because then you save on income tax AND national insurance.
If you're in need of some flexibility though it can't help to put some in an S&S ISA, though just remember you won't get the tax savings on that.
@@u3vs62cja thanks
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?
My thought exactly. No reason I can see to take drawdown.
Another great video thanks!
Have you ever considered doing a video on the best way of managing a pension pot if you are close to the pension lifetime allowance.
I know and agree it’s a nice problem to have but wondered if it was worth taking money out sooner to keep the pot lower or if the compounding effect really takes care of any extra tax liability.
Don’t want you getting any more complaints about unrealistic pension pots though 😉
Good shout - I’ve covered lots of this in a podcast, but not in a video yet. Watch this space.
@@MeaningfulMoney would love that content around LTA. That would be fascinating
Yes; I second that request. My pension is just at £150k but I hope to be at the LTA when I retire in 15 years… (Go Tesla! Go Elon!😂😂😂)
Hi Pete agreed ref LTA, although that’s way ahead of what I have I have effectively lost nearly 12 years if private pension fund savings as I left one company scheme due to a joint venture being bought out and instead of getting about £4K transferred into new company scheme I actually only received my contributions back about £500. Another company 20 years ago I declined to join the company scheme huge mistake those funds could have grown substantially.
With almost everyone now joining pension schemes at 18 there are 40 to 50 years of growth plus what you would expect substantial growth in the level of contributions. The LTA will need to be raised
Yes please Pete @MeaningfulMoney. I have a burning question on LTA. If I defer taking my DB pension by a couple of years, the initial pension payment will go up, but I will receive it for 2 years fewer. The LTA calculation of the value of the DB pension seems to be 20x the initial payment, without taking into account the reduced number of years I am likely to receive it. Will this just push more of my DC pot into the zone of extra 55/25% tax for exceeding the LTA?
What's the difference from putting your fund into drawdown, or using UFPLS.
Meaning what's the difference in growth between the two.
There is no fund with UFPLS - it’s a lump sum paid from your pension to your bank account. Drawdown requires that the pot remains invested, so you’d need to have an investment strategy.
If I wanted to do UFPLS would I be best to transfer my pension pots together. I currently have 3 separate pots and am also paying into an NHS pension
Potentially, Jean. Check whether your existing providers can facilitate UFPLS. If they can’t, you’ll need to combine them. Don’t forget that you can take small pots under £10k as lump sums too
Thank you. I will look into this
Another great video - thank you! Picking a fund value for these videos must be a nightmare - everyone complains! The ONS I think states the Median household fund value is something like 254k at 60-64 ... so 150k seems realistic for one person to me (They are rarely evenly split, and sadly it's often the woman that has the smaller pot).
That’s true. Often our planning for clients involves evening things up between partners. Not always possible, sadly. Thanks for your support!
Another excellent video, thanks Pete 🙂👍A question if i may regarding the £16760 in the UFPLS example... i fully understand the 25% tax free cash figure, and the £12750 amount. My question is... will i receive the whole of the £12750 from my pension company, or will they deduct an amount e.g. 20%(or however much) and pass it to the taxman as they don't know my situation, and i then have to claim it back from the taxman.?
They may do exactly that, Nick. A lot depends on when in the year you do the UFPLS, and the provider too…
@@MeaningfulMoney so when would be the 'best' time in the year to do an UFPLS request, or is that again dependant on personal circumstances.? By the way, provider is Aviva.
Thanks Pete.
May l ask a question, if you are a non tax payer and haven't used any of my tax relief for the past 3 years ,can l carry them forward to your present year 3 x 2800 and the present year?
That would be great, Mark, wouldn’t it?! But no, you can’t do that, sorry. I’m assuming you have no income at all?
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?
No restrictions. All of that is possible. Not an orthodox methodology, but none the worse for that!
Can all pension funds handle UFPLUs? I am wondering about Vanguard.
Not all, no. Not sure about Vanguard - you’ll need to ask them….
Great video thanks and the first time I’ve heard of UFPLS. How does UFPLS affect the amount you can invest in your SIPP once you have taken a payment?
This is a good question. My understanding is that taking any sort of taxable income from your pension funds restricts further investment in a SIPP to about £4,000 per year. However, if you have only withdrawn some form of tax-free cash, then you can still contribute as normal to your SIPP. I will definitely be waiting for Pete’s clarification on this question, as I am no expert.
@@mortelski5814 I’m expecting this to be the case having thought about it, otherwise it could be used for tax avoidance. I’ll await Pete’s clarification though.
Along with Mortelski, I’m no expert either(!) but I’m reasonably confident that UFPLS is a trigger event for the Money Purchase Annual Allowance (MPAA), which is currently £4000. It’s one reason why it’s never been a practical option for me.
As the others have said, Heath, UFPLS does trigger the Money Purchase Annual Allowance, so you would be limited to £4,000 contribution after taking it. Thanks for the kind words, folks!
Hi pete, love your videos so thank you.
Q for you, I have 780k and I'm 52 years old so have another 8/10 years of work depending on investments and add £800 a month in contributions increasing with inflation. I feel I will pass the lifetime allowance by a margin. I'm with Interactive Investors in a SIPP. What's my best option to minimise tax at this time? I understand this may change.
Stay tuned, Paul. Video coming soon
@@MeaningfulMoney Thanks Peter, look forward to it!
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?
Yep!
Hi Pete,
What conditions need to be met, to see a return to £7k annuities per £100k?
Apologies if you don't know.
You’d be better asking an economist that, chap!
@@MeaningfulMoney no problemo mate.
Looked it up. Apparently, they're linked to 15 year gilt yields.
After previously writing them off, they have reentered the equation.
If I could get 4k for 50k when I retire, I may well be tempted.
Can you just draw the £12570 personal allowance from your pension and not touch any of your 25% tax free portion of your pension and save that for a later time?
Yes you can
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 ?
I think you would benefit from decent financial planning advice, for sure. Only you know your situation, the amounts you spend and whether the work pension will cover it until state pension age. If it won’t, do you have cash or assets you can draw from? Lots to think about, and a good adviser should be able to help. Be wary anyone trying to get you to move your money into their control…
@@MeaningfulMoney ok thank you, my work pension is run by Scottish Windows but has been loosing all my contributions and some of the capital for the last 12 months even when it’s supposed to be in a medium risk plan. I don’t really trust them and their customer service is very poor. Is this something you could advise on or recommend a company to review it for me ?
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
It will definitely trigger the MPAA, John. Tread carefully!
Hi
I have a Nuvos Civil Service pension do i have any of these options at 55 years of age?
Regards
Paul
Hi. Nope - the Nuvos scheme is a Defined Benefit scheme so works completely differently. I’ve done videos on that, but essentially your options are a pension, or a lower pension plus lump sum.
@@MeaningfulMoney thank you👍
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.
You're absolutely right - bit of a brain-freeze on my part there...
How do you actually set up a ufplus account
There isn’t an account as such - you just request an UFPLS payment from your pension fund. That’s a key benefit - there’s no need to set up and run a drawdown account.
My question is. If you take out your pension as Drawdown, do you still pay your pension provider regular Management fees?
Yep, on anything which is still invested. That’s why it’s important to minimise these fees where possible b
Can you please tell me how much a professional pension advisor costs.
That’s an impossible question, really. I do t know any pension advisers. A financial planner will look at everything, not just pensions and that is better. Limited advice is flawed by definition
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?
Hi Robert. Do you have a time stamp in the video that you’re referring to? I want to be sure I’m replying to the right point!
@@MeaningfulMoney Hi Pete, listen at 2:12. Hope that helps.
To take an UFPLS OF £16760 PA would require a PF of 450 - 550k I reckon to be safe at 60 yrs old. But where to put that lump sum is the 64k $ question?
Would £150k get really buy a 65 year old £400pm an index linked annuity
Yep - I ran the numbers using our sourcing system.
Hi Kevin, Pete did say in the 1st case that due to the subjects health issues the annuity was enhanced, ie the calculator will have assumed an earlier death
Why would anyone take a drawdown instead of UFPLS? I can’t see any advantage of the drawdown.
It allows you to have a pot that you draw from easily, rather than realising lump sums. Few providers allow regular UFPLS payments, though some do, so if you wanted UFPLS monthly, you might struggle as you’d have to request it each month. Drawdown allows that more easily.
I'm not taking advice at the prices they charge. 20k for some random advice is way too much.
Prices that who charge?
I agree. I started looking for pension advisors last September. Charges vary greatly. I settled on a 1 off fixed fee. Ongoing charges once set up is the norm but getting the best value for those fees is an unknown until you see how they perform over the ensuing months. Currently I’m running at a loss, but that’s because of the current climate. That’s what I’m telling myself anyhow. (Not drawing anything yet either!)
Erm forgive me but, if Adam is 64 today his state retirement age in Uk is 66 not 65 as you seem to state or did you make this video a few years ago lol.
That is what they call a brain freeze! You’re right of course - doh!
Love your videos btw makes me look forward rather than being scared about retirement in 18 months!
Adam wouldn't get his state pension till he is 66.
Yep - a bit of a brain-freeze there!
@@MeaningfulMoney happens to us all.
You don’t get a state pension until 66. 🤔 🇬🇧
Yep, good spot. Bit of a slip there! 🤦🏻♂️