UFPLS FAQs

Here's some questions that have been regularly asked since the pension flexibility changes were introduced on 6 April 2015. These FAQ are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of current legislation, which may change.

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No. A payment of tax-free cash can only be made where the member has an ‘actual entitlement’ to a relevant pension benefit under the same scheme. An UFPLS is a lump sum payment. It isn’t a relevant pension benefit so the remaining fund can’t be paid as an UFPLS.  (Note – a relevant pension benefit includes drawdown, lifetime annuity and scheme pension).

There are a number of differences. The table below highlights some of the features of both UFPLS and small pot payments:

Feature UFPLS Small pot
BCE? Yes (BCE6) No
Triggers the money purchase annual allowance? Yes No
Maximum amount that can be paid as a lump sum when the member is under age 75 Limited to the individual’s available lifetime allowance £10,000 per small pot
Maximum amount that can be paid as a lump sum when the member is age 75 or over No limit, as the age 75 BCE will have been done and any excess charge will already have been paid. £10,000 per small pot
Number of times such a payment can be made? No limit Maximum of 3 small pots from non-occupational pension schemes
Can be taken from age 55 (or a lower protected pension age) or earlier if in ill-health Yes Yes
Tax-free element 25% of the remaining lifetime allowance * 25% if taken from uncrystallised funds

* Nil if taken from crystallised funds
Overall tax position Marginal rate Marginal rate

While the overall tax position for UFPLS and small pots results in members paying marginal rate tax on the taxable part of the lump sum, the methods for deducting tax in practice are different. When an UFPLS is paid, 25% is normally tax free and the balance is taxed using an emergency code. Small pots from uncrystallised funds are paid 25% tax free with the balance being taxed at 20%. So those taking an UFPLS may need to reclaim tax from HMRC if they’ve overpaid, whereas members taking a small pot may have a tax liability for underpaid tax, or a claim for overpaid tax if they’re nil rate taxpayers. The end result is the same once the over/underpayment of tax is resolved.

No. The transitional rules allowed members to take their tax-free cash and delay making a decision on what type of relevant pension benefit to buy with the remaining fund. So long as a relevant pension benefit is bought before 6 October 2015, the original payment of tax-free cash will be authorised. An UFPLS is a lump sum payment, not a relevant pension benefit so the remaining fund can’t be paid as an UFPLS. (Note – a relevant pension benefit includes drawdown, lifetime annuity and scheme pension).