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UFPLS - Anyone using this mechanism?
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Harry Trout
Posted: 28 October 2023 08:41:23(UTC)
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Morning all

We are now half way through the tax year and I'm thinking about accessing my SIPP to utilise my annual personal allowance. I've not accessed my SIPP before.

I'm not terribly attracted by annuities so am weighing UFPLS v Flexi-Access Drawdown ("FAD")

Interested to know if anyone is using UFPLS as it's not mentioned much on the forum? I did a search and very little comes up.

So I'm weighing whether to take an annual £16,760 UFPLS to create a £4,190 tax free amount and £12,570 to cover my personal allowance.

The £16,760 could be funded via the natural annual yield from the SIPP (with a little tweaking)

The £16,760 would likely be passed to my wife which would make our cash held in her name (and outside of our investments) last longer. We would probably plonk it into 5 year term deposits currently earning 5.3% per annum for example. We could do do this every year thus creating a "ladder".

What would be the advantages or disadvantages of this approach please versus FAD?

My overall motive is to try to kick the tax can down the road while we can. Perhaps do UFPLS for 11 years at least until the state pension starts.

For context, I'm 56 and don't intend to work again. Two kids, wife is 46 and has no earned income either and unlikely to work again.

Many thanks in advance for any advice or help

Harry
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Laura Sommer on 13/11/2023(UTC)
Thrugelmir
Posted: 28 October 2023 08:54:57(UTC)
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Perhaps it's professional advice you need. Particularly as you are retiring younger than most. Our individual circumstances all differ. Cash over time will be eroded by the effects of inflation.
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Harry Trout on 28/10/2023(UTC), Carl blue nose on 11/11/2024(UTC)
Harry Trout
Posted: 28 October 2023 09:29:27(UTC)
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Thrugelmir;284112 wrote:
Perhaps it's professional advice you need. Particularly as you are retiring younger than most. Our individual circumstances all differ. Cash over time will be eroded by the effects of inflation.

Thanks Thrugelmir, yes I would probably seek some advice before deciding but am enjoying and benefitting doing some "free" research in the meantime.

On the point about cash, for further context, we are keeping around 10 years expenses in "cash and cash equivalents" because of the particular sequence of returns risk that we face - the kids being young and likely to want to go to university.

That "cash and cash equivalents" is spread thoughout the pots, some unwrapped and some wrapped.
Roughly in order of size this category contains:

- Individual UK gilts - all <5 years to maturity, the bulk <2 years)
- Ladder of term deposits backed by FSCS - earning on average 5% (HL Active Savings / Nationwide)
- ERNS - iShares Ultrashort Bond
- Money Market Funds
- Actual cash for liquidity
- Gold (very small amount)
- VGOV - Vanguard UK Gilt ETF (even smaller)

Our personal inflation is less than 5% currently.

10 years of expenses is a lot but it feels like the right allocation for us at the moment.

Do you use UFPLS? FAD? Annuity? Interested to know, thanks.
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Tim D on 28/10/2023(UTC), Newbie on 28/10/2023(UTC)
Evies Dad
Posted: 28 October 2023 09:35:53(UTC)
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I usually take my pension drawdowns by UFPLS in the same manner as you are suggesting, though I have taken slightly more as I my wife has previously transferred part of her personal allowance to me. Bear in mind that because of the way the PAYE system works you will end up with a lump of tax being deducted and how large this amount is will depend on how early in the tax year you do your drawdown, so it pays to leave your drawdown to as late in the tax year as you can.

You can reclaim any tax deducted using the P55 claim form. Previously I have found these have been processed pretty quickly (approx 8 weeks last time) but like most things government related I would now expect a delay.
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Harry Trout on 28/10/2023(UTC)
Dan L
Posted: 28 October 2023 09:58:35(UTC)
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UFPLS and FAD could both provide this type of drawdown. Just mechanical differences as the providers end.
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Harry Trout on 28/10/2023(UTC)
ANDREW FOSTER
Posted: 28 October 2023 10:07:33(UTC)
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Yes be carful....

My first year I used UFPLS to cover my allowance.

They decided that meant I was going to do that every month and taxed it at 40%.....the idiots. I had to get a refund which was a pain.

So I set up drawdown instead. The money dropped into an MMF in my "drawdown account" to gain a bit over the year as the monthly payments came out.

I've stuck with this method since.
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Dan L on 28/10/2023(UTC), Newbie on 28/10/2023(UTC), Tim D on 28/10/2023(UTC), Harry Trout on 28/10/2023(UTC), SSJ on 28/10/2023(UTC), Keith Clunk on 02/01/2024(UTC)
Evies Dad
Posted: 28 October 2023 10:27:52(UTC)
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If your wife is not using her personal allowance then she can transfer 10% of it you if not already doing so. Also she can contribute £2880 to a pension to get £720 free tax relief each year.
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Jay P on 28/10/2023(UTC), Harry Trout on 28/10/2023(UTC)
Busy doing nothing
Posted: 28 October 2023 10:29:20(UTC)
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The problem with UFPLS is that you have to eventually liquidate the whole pension to extract the 25% tax free amount, whereas using drawdown you can have that tax free amount straight away and drip feed it back into an equity isa. At 56 years of age you could take £12570 tax free for 11 years out of the SIPP as well.
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9 users thanked Busy doing nothing for this post.
Jay P on 28/10/2023(UTC), Tim D on 28/10/2023(UTC), Harry Trout on 28/10/2023(UTC), Sheerman on 29/10/2023(UTC), Laura Sommer on 13/11/2023(UTC), Dentmaster on 31/12/2023(UTC), Keith Clunk on 02/01/2024(UTC), Carl blue nose on 11/11/2024(UTC), Jonathan7 on 15/11/2024(UTC)
Evies Dad
Posted: 28 October 2023 11:20:38(UTC)
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But you can mix & match, it doesn't have to be one or the other. You also have to do something with the tax free cash whilst you feed it into your ISA, putting it into a GIA and dealing with CGT & Dividend Tax may not be for everyone, especially given the reduced allowances. .Also whilst the money is in a pension it's protected from IHT under current rules.
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Tim D on 28/10/2023(UTC), Harry Trout on 28/10/2023(UTC), SSJ on 28/10/2023(UTC), Laura Sommer on 13/11/2023(UTC)
Thrugelmir
Posted: 28 October 2023 12:50:24(UTC)
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Harry Trout;284115 wrote:

Do you use UFPLS? FAD? Annuity? Interested to know, thanks.


I'm drawing down using UFPLS on a monthly basis. No annuity at the current time as have two DB schemes. One that uplifts annual by CPI the other by a fixed 5% per annum. My partner has an NHS pension that she contributed for many decades plus an AVC scheme that she's yet to utilise. Despite being contracted out I'm at full state pension entitlement and my partner just one year short.

I don't actually need the money from SIPP for day to day expenditure. This is a tax planning exercise to run the SIPP down while remaining within the 20% income tax bracket. If my partner precedes me then I'll receive 50% of her pension. A sizable source of income in itself.
.
My plan is to annuitise what's left of the SIPP at a later date. Investing requires a long term horizon. Time eventually catches up with us all. While I maintain some money to have "fun" with. I'll happily take the secure income and spend it ! Or gift some to help local charitable causes. Giving in many ways being far more rewarding. My partner is extremely good with our household finances but not investment orientated at all. I wouldn't to leave her with the onerous task of managing a complex portfolio.

I never let the tail wag the dog when it comes to paying tax. If I make decent returns on my chosen investments then i've no objections in doing so.
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5 users thanked Thrugelmir for this post.
Jay P on 28/10/2023(UTC), Tim D on 28/10/2023(UTC), Harry Trout on 28/10/2023(UTC), SSJ on 28/10/2023(UTC), Dentmaster on 29/10/2023(UTC)
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