Increase Your 25% Tax Free Pension Lump Sum | UK Pensions
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- เผยแพร่เมื่อ 22 ก.ค. 2024
- How does pension lump sum work? Is it possible to get more than a 25 percent lump sum? The answer is YES, and I explain how in this step by step guide.
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The content in this video is provided for information and entertainment purposes. It should not be construed as direct or indirect financial advice. You must throughly research any potential financial or investment decision and fully understand the risks before taking it. If in doubt, you should seek individual advice from a professional adviser.
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TIMESTAMPS:
0:00 Start
1:58 How Does Pension Lump Sum Work?
2:36 What Is An Annuity?
3:02 What Is UFPLS?
3:33 What Is Flexi Access Drawdown & How Does It Work?
5:48 How Can You Take More Than 25% Tax Free Lump Sum?
7:42 Using Pension Lump Sum To Reduce Income Tax On Withdrawals
8:39 Using Pension Lump Sum To Take A Tax Free Income
Many people are aware that 25% can be drawn out of their SIPP, personal pension or employer sponsored money purchase pension scheme TAX FREE, but they don't always know how this works.
When you take a tax free Pension Commencement Lump Sum, you have to choose which income vehicle you are going to use. This could be either:
Annuity
Uncrystallised Funds Pension Lump Sum (UFPLS)
Flexi Access Drawdown
In this video I describe how each of these vehicles works and how you can increase the amount of pension lump sum that you receive.
Understanding UK pensions and the tax planning opportunities available is a key part of personal financial planning - the basics are all covered in this 'Pensions Explained' video.
Thanks everyone for such a positive response to this video! Let me know if there are other pension related topics you’d like to see covered in future content 🙂
A-Day forms. Why are they important, how precise do you need to be, what should you do if you have missing valuations, etc
Thankyou very helpful
I'd be very interested in finding out what to do if you have reached 55 and your pension funds are spread across a number of different pension funds, with no option as it is to merge them all into one... Just asking for a friend!!
Thank you Chris - an excellent video - I have liked and subscribed. How can I get in touch with you on a professional basis please? Cheers, Julian
Hello Chris
Great,simple insightful video.
Have a question...I have been receiving a royal mail pension(following a traffic incident whilst working for Royal mail) for the last 20 years.
At aged 56 can I now withdraw a cash lump sum?
Many thanks in advance for your prompt reply
I wish this stuff were taught in school. Financial literacy is so important for one's life prospects.
But would anyone pay attention ? I was a pretty geeky student, but I reckon that even I would have slept through a lesson on the merits of passive investing, tax optimization, or drawdown strategies. Now turn your textbooks to page 437.
I agree, and I also agree with the reply above! They are trying to teach things more in schools, but I think they need to find a way of making the education more practical and improving the overall content.
They are teaching finance in some schools. I was glancing at one of the textbooks and the pages on mortgages and it was very detailed and in-depth.
The governments purposely don’t teach all these basics in order to tax us to death ☠️ totally unacceptable!!!
My head is spinning but this is gold. Many thanks.
Glad you thought so! Thank you 👍
Absolutely first class. This is the clearest way I've seen it explained.
Thanks so much Lynn I’m glad it was helpful.
Stumbled across this video and despite having watched other content, never knew this information. The example at the end is very useful. Thanks Chris.
You’re most welcome! Thanks for watching I’m glad it’s useful.
Thank you! I’ve been watching many pension videos, and this has been by far the most useful! Finally some of my questions answered.
You’re very welcome it’s great to hear this!
Great video...a confusing topic superbly and simply explained. Thanks!
Thank you Anthony I’m glad you thought so!
Excellent information Chris.....straight to the point !!
Many thanks Steven really appreciate that 👍🏼
A complex issue explained very simply. No flashy graphics just well presented examples that show the principle.
Thanks Jonathan! I appreciate that.
Thankyou your presentation has been a great help and I can now have an informed conversation with my IFA next week when we plan to go into drawdown.
Great David, glad it was helpful 👍
I am not a professional but reasonabley well informed, and have seen this covered before, but this is the best one I have seen.
That’s good of you to say, thank you.
Superb pension planning video, you nailed it, bravo!
Best explanation I’ve come across…thankyou so much. And that final example you gave, really helped, as it was closest to our situation.
That’s great to hear! Really pleased it’s helpful.
very helpful thank you - I may need to watch tis a few times to get my head around it but - great info clearly delivered!!b
Thanks Richard I appreciate it. I’m pleased it helps.
This is the best video I have seen explaining the tax free methods of a pension draw down. You make some complex and explain it simple. Love it. Thank you.
Very kind Grant! Thanks for watching and I’m glad it’s useful.
Brilliant explanations of stuff I was struggling to get my head round
Very good stuff Chris, never would have thought of this, big thumbs up 👍👍👍👍👍👍
You’re welcome Mike! Glad it’s useful 👍🏼
Subscribed at 2:46 because you have already explained a few terms about pensions, of which I knew nothing before.
Good to hear that thanks for subscribing!
Chris, the clearest explanation I have seen so far.
I turn 55 this year and have been exploring taking a tax-free lump sum from one or more of my plans. Two of my plans are not available any more, Scottish Widows - With Profits Unitised so I have been told they will need to be crystalised and I will have to take the full 25% tax-free from both and not a fixed amount. They'll then be moved to a single drawdown plan. That's to be confirmed when I speak to their pensions expert on the next call.
I have 46 years of LGPS due in a year, so I have subbed and have a lot of learning to do. Cheers Chris
Thanks for subscribing. I hope my content helps.
helpful and sufficiently brief, thank you Chris
Thanks Mark much appreciated 👍🏼
Hi CHRIS ….. thank you very much for this video which is extremely helpful and very informative !!!
In fact I would even go so far to say that this is the clearest best explained video on this subject probably anywhere on the Internet !
I would suggest to most people that they will probably want to watch it several times and it is very easy to get your head round it if one does that .
That’s a very nice comment Jason thank you very much!
Blocks example made it so easy to understand.. brilliant
Thanks so much. Really glad they did the trick!
could I explain this…yes. Could I explain it a simply as you did no chance. Fantastic. I’m subscribed. I make things look so difficult.
Thanks very much I’m really pleased you found it clear and concise.
Hi Chris, the above video is first I have seen from you, thanks so much for the information. I have subscribed and will reviewing all your information. I have just gone 65, still working and in a money purchase scheme. My state pension age is 66. I'm probably going to continue working to at least 67. I will try to get my head around the subject and you have provided me with a great start. I was not aware of any of the stuff you provided. Thanks again.
That’s very kind Paul thanks for your comment, and I hope my other content provides good value 👍🏼
Thanks for cutting through it. I’m a fan
Thank you!
Very helpful. About to go into drawdown. Will be doing things on a monty basis so pot keeps growing, and using savings to avoid tax burden
Excellent video. One to keep watching as a reference point.
Thanks Mohamed I’m glad it will be useful 👍🏼
Thanks Chris for this fantastic video it's ever so helpful cheers.
Really pleased Martin, thank you.
Thanks Chris this video has been very helpful, I'm 58 and thinking about taking my 25% very soon.
Excellent Chris I’m glad it’s helpful and timely 👍🏼
I'm cr*p at all this sort of stuff but you've helped me grasp this somewhat . Thanks.
Glad it’s helpful.
Thank s Chris
that really helps to explain how that works 👍
Cheers Graham
Please Graham. Glad it helped 👍🏼
Thank you for a straight forward explanation of the tax free allowance.
You’re welcome Stephen glad it’s helpful.
Just found you by accident, very informative, I'm knocking on 55 so will have to decide which way to go with my post office pension.
Glad it’s helpful Kevin.
Thanks Chris, very intuitive video.
You’re very welcome Dean thanks for watching 👍🏼
Cheers Chris . That was very helpful.
You’re welcome 👍🏼
Well explained Chris with some great examples. Really appreciated as it helps me consider what I need to do.
I'm glad to hear it was helpful Malcolm. Thanks for watching 👍
Wow this goes to show that we need to carry out a lot of research before going ahead with our pension withdrawals. Thank you very much for the simple illustrations. New Subscriber here. This information is pure gold. Just came across your channel. Making some popcorn for the binge watch this weekend 😀
Thank you Marian! I hope you enjoy my other content too.
Excellent Vlog Chris 👌
Thank you Andy! 👍🏼
Very clear and concise advice, thank you.
You’re very welcome.
Really helpful and very well explained. Subscribed!
Thank you! I hope you find other videos useful too.
This video is an absolute gem ! thanks for sharing
Thank you glad it’s helpful!
I'm only 43 so nowhere near retirement yet although hoping that 55 could be the magic number. I've been researching a lot about my pension recently but didn't know this crucial information about how the 25% draw down works. I'm very grateful to you for providing it and in such a clear to understand manner. Thank you
Really clear and helpful explanation. Thank you.
Thank you Tony. It’s always good to know the explanations have helped.
I talk to people all day long about their pension withdrawals. I so wish I could explain things like this to them. I think it would step over the implied advice line for me though so we are only allowed to give basic factual information. Superb information though and brilliantly laid out and explained. I wish i had found yours and James Shacks channels sooner. The problem we face - I work for a pension provider - is the amount of people that are terrified of Financial advisers or those that do not have enough wealth for an FA to see them. This sort of information would be invaluable to them but we are not allowed to direct them to it.
I appreciate your kind words! Yes it is a shame that some signposting isn’t possible. The information is out there for people, but they’re not always aware how to find it.
Very clearly explained, well done. I remember as a child learning to count with Cuisenaire Rods (and I'm pleased to see that now, 58 years later, they are still produced and used), and I'm still a visual thinker, so the blocks certainly helped!
Thanks David. I do find the blocks make this subject much easier to explain. Glad it’s helpful 👍🏼
This is brilliant. Well explained.
Glad it’s helpful Peter.
Excellent video learnt some really useful stuff. Thank you
Thanks Jon I’m glad it helped 👍🏼
Just found this and it’s one of the clearest illustrations of the subject I’ve ever seen. Thanks so much!
Thanks very much Richard. It’s great to hear that my explanations have been helpful!
Brilliant video Chris.
Many thanks Terry 👍🏼
Got to buy some building blocks 😉 Excellent demonstration.
Thanks David 👍🏼
Fantastically explained Chris!
Thanks very much! Always good to get comments like this 👍🏼
Watched a tonne of these videos. This is the first 10 out of 10 I've come to.
Thanks for that I really appreciate you saying so!
Very pleased you found it useful.
Amazingly well explained thank you so much
I’m really glad it was helpful Anne.
That was really good, thank you!
You’re welcome thank you for watching.
Thanks, I’ll have to watch again a few times to get it, my kind of graphics :)
No worries! Glad it's helpful.
fab Chris, thanks for making this content
Thank you, and you’re welcome! Just glad it’s useful to people.
Just watched and subbed....thank you for the advice. I hit 55 in 3 years and was thinking of taking 25 percent of my pot to then pay 10 percent overpayments on my mortgage for 5 years. Not sure if it's the right thing to do but it seems right to me!!
Thank you. Yes, that will certainly create a tangible financial benefit.
Hi Chris, I stumbled upon this video via TH-cam recommendations. I have been thinking about this for sometime now,(even though I have 2 decades before I can withdraw my pension). I have never heard anyone explaining this subject as clearly as you did, especially about UK laws. Clearly there is a huge gap when it comes to USA and UK investment/financial content. Keep up the good content and I will be binge watching your other videos. Thanks
Very kind words Sachi! I hope you enjoy the other content 👍🏼
The governments purposely don’t teach all these basics in order to tax us to death ☠️ totally unacceptable!!!
This is really good. I have heard about UFPLS but didn’t know you can take more than 25% tax free that way. This would only work if you don’t need an initial tax free lump sum which most people do take
Hi there. Thank you! In my experience now, far fewer people take all of their lump sum in one chunk like they used to.
Awesome video Chris! I google searched this and clicked on many websites but was left bamboozled with their explanations, just couldn't get it. Thank you for explaining this topic so well :-)
Thank you I’m so pleased you felt it was explained well. Really hope it helps you.
The assumptions assume the pot grows. If it falls the amount of the tax free cash will fall with it and so you would end up with less than 25% of the initial notional value. Good video apart from missing that if.
Chris is an absolute wizard! First class advice as always.
Cheers Terry! ‘The Wizard of Wolves’... has a bit of a ring to it 😂
Absolutely brilliant, The idea for the plastic bricks makes so much sense, its a fantastic visual representation, very professional, and explained carefully.
I thought i knew what i could do with my my draw down pension, but this is at a whole other level. !!
Well done
Thank you,
You got another SUB,
Thanks so much for your comment Gary - really appreciate the feedback and it’s great to hear that it’s useful!
By far, the best piece of advice about pensions I've ever seen. I'm 61 and will soon need to decide what to do, many thanks 👍
Thanks Kevin I’m really pleased you’ve found it helpful! 👍🏼
Brilliant ..Thanks .
One of the best!
Thank you!
Fantastic vid. Subscribed :)
Thank you!
Great video on what is a complex matter. FYI, taking income using UFPLS will also trigger the £4,000 money purchase annual allowance, and is mistake lots make. Don't dip unto your pension pot to help with the cost of living crisis until you understand the potential tax issues that are caused by the MPAA. The £4000 limit includes employer pension contributions, not just your own.
Spot on Iain, accessing taxable benefits using any flexible withdrawal method (UFPLS or flexi-access drawdown) will trigger the MPAA.
nearly a year old this video but very relevant to most. thanks Chris. Not sure how it would work with defined benefit/final salary planning though. will have to check out your other videos to see if this is possible.
Thank you! With DB pensions you'll find that your Personal Allowance is used up (at least in part) by that, so it's not possible to be quite as tax efficient. It is still possible however to just use tax free lump sum (no income withdrawals) to supplement the DB income until all lump sum has been taken.
@@chrisbourne-retirementplanner cheers. unfortunately, my personal allowance will be used up by the final salary pensions so will have to maximise other avenues :) and then adding the state pension on top will see me paying tax even more. lucky me eh
Update - sorry just re read your reply and you did mention about the PA and I blindly wrote it down. thanks again.
This couldn’t have come at a better time for me, my transfer value has just gone through and I need a lump sum of 130k to help towards purchasing a property, (I’m stuck in the rental trap at 55 due to a divorce)
Seeing as i need to purchase outright and don’t want mortgage debt at my time of life, I cannot really see the benefits of using your method, nether the less, it was very clear and concise and well put into layman’s terms, very easy to understand and I will use it for future withdrawals, thank you Chris
Thanks Andy! Yes, sometimes circumstances dictate that other methods of withdrawal are more suitable. I’m glad the information is helpful to you though 👍🏼
Very informative 👍
I’ve watched this a few times, Chris. Thanks for the detailed explanation.
Please can you elaborate on how the 4pot model can be built leading up to retirement, ie in your example, how much is held in each wrapper. Thanks again
Hi there. Unfortunately there is no template for this. It depends on too many individual factors such as income levels now, income requirements in retirement, marital status, tax status of spouse, estate planning objectives and many other things. As a rule of thumb, when you are able to fill ISAs and pensions every year, it is probably time to take advice.
Brilliant video thanks for this
You're welcome thanks for watching!
Gosh it’s much more complicated than most of us knew!
Hi Molly. Hopefully the video helps simplify it a bit!
Excellent explanation
Thank you Jon 👍🏼
Excellent Advice.
Thank you Alan 👍🏼
Very helpful. Thanks. 😊
You’re welcome!
Chris. Great video. Think you should have pointed out what happens to your pension fund when you die. Eg if you take the annuity option you lose all the money when you die, nothing for your heirs. Quite critical I suggest when making your initial choice.
Hi David. There are value protection and guaranteed payment options that can be added to annuities, but this video focused more on flexible income options and how to maximise tax free lump sum.
You really need your pension for after you have retired so only take extra money out of the pension if you really need to and are willing to have less money to live off later. In the UK the state pension is paid late sixties dependant on your current age. When you get it any tax due actually comes off your main work pension if you have one.
Great video! Clear and concise, I have far better understanding on this topic now. Thanks for sharing (subscribed 👍)
Thanks Nicky! Welcome to my channel 😊
Excellent video bud, this sort of of info is very useful for me right now...maybe we can talk sometime.
Hi glad it’s useful! Feel free to reach out on my channel email (see About section).
Subscribed 😊
Great vid explaining this. I was just in the process of looking to take my 25% tax free lump sum when I found this vid. My pension adviser hadnt mentioned this way of doing it. Thanks for enlightening me and giving me another option
Glad it’s been useful Mark! Thanks for your comment.
Thanks Chris - really helpful explanation. I am pretty pleased by the current flexibility that the pension rules allow and through the use of a mash up of ISAs, Shares, Tax Free Cash can get a decent retirement income with very little tax to be paid. Tanks for the clear steady explanation - I liked the use of counting blocks (despite being an accountant!) visually I find it so much easier to grasp. Keep up the good work.
Thanks very much. I'm really pleased the blocks made it easier to digest - it can be a stodgy subject!
Super stuff thanks
You’re welcome!
Great advice 😊
Thanks for watching.
Great information 👍🏼
Thank you.
Hi Chris, Can you do a video on CGT and the benefits of using your SIPP, to minimise tax bill.
Hi Mangal. I will definitely be doing some tax planning videos in the near future. I will posting a community post shortly to explain some of the content I’m planning and I will be asking for suggestions on things viewers want me to cover, so feel free to get involved.
Hi I’ve watched a few videos, then saw this one about 25% it was really well explained! N then I pressed the button. 👍
Awesome, thank you!
Wow, my heads spinning but I'm sure I will understand it after another watch, I thought like most people 25% was the maximum I could take tax free but no one had ever explained the term crystallisation to me before or how it works.
Glad it’s useful Nigel thanks for watching.
Thank you very well explained.
The examples used all assume growth in funds retained in pension. In a zero growth scenario all options would be identical from a tax perspective. In a loss scenario the tax free cash would be less.
Have I understood this correctly, Thank you.
That is absolutely correct Chris.
Great video Chris explained really well in a complicated topic.
Thanks Chris. If I’ve succeeded in making it easy to understand then I’m pleased as it certainly can be a complicated topic 👍🏼
Wish all financial advisors were able to explain the process as clearly.
Very kind of you to say Derek. Thanks for your comment 👍🏼
Bugger no extra savings with a Forces Pension paying above the 12.5k Threshold. Still a great explanation thanx.
Thank you!
Really good information
Glad it was helpful!
Very very helpful. I presume the uncrystalised pension and flexi-access drawdown pots are essentially the same thing in terms of investment and future growth, just separated as one is pre and the other post crystallisation? Both remain invested. Both growing, but you have two investment pots?
Absolutely correct - they are only separated so the correct tax treatment is applied upon withdrawal.
Thanks Chris, excellent explanation, I triggered MPAA in 2015 by taking 25% that was taxed, I actually wanted it all as the tax free option but
I didn't appreciate the MPAA aspect and let it go
Too late now of course. Expensive mistake !!
I've been told by Pension Wise I can still have 25% tax free lump sum anytime I like, so that's something at least
Hi Tony. Ah yes that’s a painful one that I’ve seen happen before. There should be better warnings to people if they are doing things with providers directly.
@@chrisbourne-retirementplanner thanks Chris,
I cheer myself up with the thought that I used it as a deposit for a buy-to-let flat which was £133k in 2016, and is now £180k, plus a little rental surplus income along the way, a small crumb of comfort.
What you lose on the swings, you gain on the roundabouts 😀
Fabulous !
Thank you!
Absolutely superb video Chris, and great explanation of the MPAA that seemingly isn't clearly worded anywhere.
However you did confuse me with why you crystallised 40k to take 10k.
What am I missing?
If I have 500k and want to take 5k why would I have to crystallise more than 5k. I'm lost lol
Thanks very much! Really glad it’s useful. The reason is that the tax free lump sum is 25% of the crystallisation amount. Therefore, to get £10k tax free lump sum, you’d need to crystallise £40k. If you crystallised just £5k, only £1,250 would be paid as tax free lump sum.