Latest news with #UFPLS
Daily Mirror
16-07-2025
- Business
- Daily Mirror
Millions of over-60s told 'withdraw cash and move it' amid cost of living crisis
Mistakes over-60s are making include not claiming DWP benefits they are entitled to - like Pension Credit or the state pension. Others include drawing from a private pension while still paying in A crucial alert has been issued for millions of UK households aged over-60. Those above 60 are being urged to "act now" to prevent missing out on vital funds as the Cost of Living crisis persists across the nation. Blunders that over-60s are committing include failing to claim Department for Work and Pensions (DWP) benefits they're eligible for, such as Pension Credit or the state pension - if aged over 66. Additional errors involve withdrawing from a private pension whilst continuing to contribute, which can activate the Money Purchase Annual Allowance (MPAA) and slash your tax-free pension contribution ceiling from £60,000 to merely £10,000 annually. Families are advised to steer clear of making flexible withdrawals (such as UFPLS or income drawdown) where possible, and urged to examine interest rates on their banking accounts, as many currently sit below one per cent interest. Households can extract cash and transfer funds to an easy access savings account, with some offering up to 4.98 per cent. As an alternative, over-60s can deposit their money into fixed-rate ISAs and bonds providing up to 4.58 per cent, reports Birmingham Live. Funderer's chief analyst commented: "Many over-60s are unknowingly leaving money on the table. These aren't complicated strategies - they're simple steps that can have a big impact on financial security in retirement. Acting now can make your money last longer and give you peace of mind." Mark Hicks, head of savings at Hargreaves Lansdown, has stated: "Given that markets now expect two or three more rate cuts for the remainder of the year, savings rates are likely to continue trending downwards in the months to come, and fixed rate deals above 4.5% may not be around for much longer. "For savers, this means keeping an eye on your savings rate, and being prepared to switch. You need to keep your emergency fund in easy-access savings, which are likely to drop. "However, some banks will be in more of a hurry to cut rates than others, so you could more than double the rate from a pedestrian high street giant by shopping around among online banks and savings platforms. "For money you don't need for longer, this is a decent opportunity to consider fixed rate savings. Fixed rate deals, which guarantee the rate for a specific period – from a couple of months to five years – will let you lock in a rate for the duration. "These have come down from the peak, but you can still make around 4.5%, and as easy access deals get less generous, these deals will look increasingly attractive. "It means anyone who has money they don't need for a fixed period of a few months or longer should consider tying it up for a better rate."
The Independent
28-03-2025
- Business
- The Independent
Should I withdraw a lump sum from my pension, what are the taxes and what are the alternatives?
SPONSORED BY TRADING 212 The Independent Money channel is brought to you by Trading 212. Taking a lump sum from your pension can be a fantastic way to pay off your mortgage, help out the kids or boost your savings. But understanding the rules is crucial if you want to make the most of your hard-earned wealth later in life. Don't forget, this is separate to your state pension, which you can top up now if you have gaps in your National Insurance record - but act fast as time is running out for some previous years. What are the tax rules for taking a lump sum? Once you reach age 55, you can start to make withdrawals from your pension, including a 25 per cent tax-free lump sum - the minimum age is rising to 57 in 2028. You can either withdraw the whole tax-free amount in one go or make a series of smaller withdrawals adding up to 25 per cent of your total pension value. The remaining money stays invested and is charged income tax when you come to draw it, although there's no national insurance tax to pay on pension income. For instance, if you have a pension pot worth £100,000 you can withdraw £25,000 tax-free and leave £75,000 invested, ready to use later in retirement. You can use it to buy an annuity at any point to provide a guaranteed income, or take income as you need it, known as flexible drawdown. Here are a few rules to know: You can keep paying into your pension after withdrawing a lump sum, although HMRC has recycling rules to stop you from paying back the money you have withdrawn Each pension pot is treated separately, so you can withdraw 25 per cent from one pension pot and leave another untouched to withdraw 25 per cent from there too later Once you start withdrawing taxable income (including UFPLS, see below), you will trigger a lower annual pension paying-in allowance of £10,000 rather than the normal £60,000 Wealthy pensioners need to watch out because there is a £268,275 total limit on tax-free lump sums, but this only affects retirees with more than £1,073,100 stashed in pensions If you have a final or average salary pension, you'll need to check the small print to see if and when you can take a lump sum. Here, we're focusing on defined contribution pension schemes - the type where you build up a pension pot for retirement. Taking your 25% tax-free lump sum in one go Many retirees opt to take their whole 25 per cent tax-free lump sum in one go and leave the rest invested for their retirement later on. Your remaining pension pot will move into a 'drawdown' account and will attract income tax, along with the rest of your income when you come to draw on your pension. You can use the rest of your pension to buy an annuity to give a guaranteed retirement income, or you can leave it invested and draw income flexibly when you need it. Taking your lump sum gradually You don't have to take your tax-free lump sum in one go. You can also take several smaller lump sums as needed, leaving your money invested for longer. One option is to move your pension gradually into a 'drawdown' pot to use as income later, taking 25 per cent of each amount as a tax-free lump sum. This is often called phased or partial drawdown. For example, if you have a pension pot of £100,000, you could move £40,000 into a drawdown pot, using most of it later and taking the first £10,000 as a tax-free lump sum. The remaining £60,000 remains invested and has the chance to grow over time. In the future, you can withdraw 25 per cent tax-free from this remaining pot, when it has potentially grown in value. Another option is using a 'Uncrystallised Funds Pension Lump Sum' (UPFLS) arrangement. Here, whenever you take a lump sum, 25 per cent is tax-free, and 75 per cent is taxable. Again, the remainder of your pension pot stays invested, ready for when you need it later. Speak to your pension provider or get financial advice if you need more information on these options. Taking your whole pension in one go Some people with small pension pots choose to withdraw their whole pot in one go. You need to watch out here because only the first 25 per cent is tax-free, so you may need to pay tax on some of your withdrawal. Alternatively you could also continue paying in and look to grow your pension pot further for future years. Which option is best for me? Your pension needs to last for the whole of retirement so it's important to take time to make the right decision. Taking your 25 per cent tax-free lump sum in one go is a simple option and can free up cash to help you pay off your mortgage or boost your savings. You can make a decision later about what to do with the rest of your pension pot. Taking a series of smaller lump sums can work well if you have other savings. Because more of your pension stays invested, it gives your investments time to grow and can boost your later retirement savings. UFPLS can also be useful for higher earners who want to spread their taxable pension withdrawals over several years to minimise their tax bill. Whichever option you choose, it's worth pointing out that you don't need to make a decision immediately. Although you can take a tax-free lump sum from age 55, you might end up better off if you leave your money invested for longer if you're able to live off other incomes. When investing, your capital is at risk and you may get back less than invested. Past performance doesn't guarantee future results.
