Understanding UFPLS
Up to 30 CPD minutes
Introduction
Uncrystallised funds pension lump sums (UFPLS) allow individuals to take their pension benefits as a lump sum, or series of lump sums. This will be an attractive option to many individuals, but it’s important that advisers can explain the consequences of taking such a lump sum - in particular, the potential tax and funding pitfalls.
This module should take around 30 minutes to complete. It includes a short self-assessment quiz to test what you’ve learned. A 30 minutes CII/PFS accredited CPD certificate can be claimed.
This module should take around 30 minutes to complete. It includes a short self-assessment quiz to test what you’ve learned. A 30 minutes CII/PFS accredited CPD certificate can be claimed.
Outcomes
On completion of this module you should be able to:
- List the conditions that have to be met to allow an UFPLS
- Explain the taxation of UFPLS
- Describe how taking an UFPLS can impact on future pension funding
Learning material
This module looks at the requirements to allow UFPLS payments to be made, the taxation of these payments and how future pension funding can be impacted.
Please read the learning material before attempting the self-assessment questions.
CPD minutes: up to 30
Technical guide - Uncrystallised funds pension lump sums (UFPLS)Opens in new windowPlease read the learning material before attempting the self-assessment questions.
CPD minutes: up to 30
Post learning assessment
Question 1
Which of these is NOT a condition to allow an UFPLS?
a. The payment is made from uncrystallised money purchase funds
b. The individual has enough lump sum allowance for 25% of the UFPLS payment to be tax free
c. The individual doesn’t have fixed or individual protection
d. The individual is at least age 55 or meets the ill-health conditions
a. The payment is made from uncrystallised money purchase funds
b. The individual has enough lump sum allowance for 25% of the UFPLS payment to be tax free
c. The individual doesn’t have fixed or individual protection
d. The individual is at least age 55 or meets the ill-health conditions
Question 2
Which of the following statements is FALSE about the taxation of UFPLS?
a. Normally 25% is tax free with the balance subject to income tax
b. UFPLS are normally taxed using an emergency tax code on a month one basis – any overpayment can be reclaimed
c. The member must be at least age 55 or meet the ill-health conditions
d. UFPLS can provide more than 25% tax free cash where there is scheme specific lump sum protection
a. Normally 25% is tax free with the balance subject to income tax
b. UFPLS are normally taxed using an emergency tax code on a month one basis – any overpayment can be reclaimed
c. The member must be at least age 55 or meet the ill-health conditions
d. UFPLS can provide more than 25% tax free cash where there is scheme specific lump sum protection
Question 3
Taking an UFLPS has which of these consequences?
a. Contributions to money purchase schemes in the tax year of taking an UFPLS are limited to £10,000 and no carry forward of unused annual allowance
b. Contributions to money purchase schemes are reduced to £10,000 per tax year plus any unused annual allowance carried forward
c. Contributions to money purchase schemes are reduced to £10,000 per tax year and no carry forward of unused annual allowance
d. Contributions to defined benefit and money purchase schemes are limited to £10,000 per tax year and no carry forward of any unused annual allowance
a. Contributions to money purchase schemes in the tax year of taking an UFPLS are limited to £10,000 and no carry forward of unused annual allowance
b. Contributions to money purchase schemes are reduced to £10,000 per tax year plus any unused annual allowance carried forward
c. Contributions to money purchase schemes are reduced to £10,000 per tax year and no carry forward of unused annual allowance
d. Contributions to defined benefit and money purchase schemes are limited to £10,000 per tax year and no carry forward of any unused annual allowance
Check your answers
c. The individual doesn’t have fixed or individual protection.
d. UFPLS can provide more than 25% tax free cash where there is scheme specific lump sum protection
c. Contributions to money purchase schemes are reduced to £10,000 per tax year and no carry forward of unused annual allowance.
Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.