There are times when the best way to take money out of your pension is to take a series of lump sums over time, instead of taking all the tax-free cash in one go. When you do this, 25% of whatever you withdraw is free of tax while the other 75% of the money you withdraw will be taxed like any other earned income you receive. This way, you can make multiple withdrawals.
When you do this, it’s called taking an Uncrystallised Funds Pension Lump Sum (UFPLS for short).
The government's Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.pensionwise.gov.uk or over the telephone on 0800 138 3944.
When you withdraw money from your pension, this money may be subject to income tax. Use our calculator to help you understand how much tax you might have to pay.
Our retirement specialists can help you get ready for retirement, by supporting every aspect of your plans – from choosing the right income for your needs to making sure your money lasts.
Fidelity's retirement service has retirement specialists who are able to provide both guidance and advice. The service we offer is based purely on helping you find the most appropriate solutions for your personal circumstances. Call us on 0800 368 6882
If you think you might want to top up your pension pot in the future, for instance because you want to keep working part time, then you need to be aware that taking money out using UFPLS could affect the amount you can pay in and receive tax relief on.
If you use UFPLS, then your annual allowance (the amount you can pay into your money purchase pensions each year and receive tax relief on) for any future contributions will drop from £40,000 to £4,000. This is called the Money Purchase Annual Allowance. If you took an UFPLS in any of the previous two tax years then your MPAA is also £4,000 (instead of £10,000) for the 2017/18 tax year. For more information please review our factsheet.
If you think you will want to continue topping up your money purchase pension pot with more than £4,000 a year after you retire, then you may want to consider other options.
Find out more about taking lump sums from your pension, or contact Fidelity’s retirement service for more information on 0800 368 6882.
The value of investments can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular product, service or course of action. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please contact Fidelity’s Retirement Service on 0800 084 5045 or refer to an authorised financial adviser. Pension money cannot usually be withdrawn until age 55.