Pension Drawdown vs UFPLS: Which Retirement Withdrawal Option is Right for You?
Pension Drawdown vs UFPLS: Which Retirement Withdrawal Option is Right for You?
February 27, 2025
When planning for retirement, you’ll need to consider how you will access your pension savings. Two options here in the UK are pension drawdown vs UFPLS (Uncrystallised Funds Pension Lump Sum). In this blog, we explore the key differences between these pension withdrawal strategies, and share some practical advice on how to choose the right option for you.
Understanding the Main Pension Withdrawal Options
Pension Drawdowns
Also known as flexi-access drawdown, pension drawdown allows you to withdraw up to 25% of your pot as a tax-free lump sum, whilst the remaining funds continue to be invested. This provides the potential for growth and allows you to draw a taxable retirement income from your pension as needed.
UFPLS
An Uncrystallised Funds Pension Lump Sum (UFPLS) allows you to take lump sums directly from your pot without moving into a drawdown arrangement or buying an annuity. 25% of each withdrawal is tax-free, whilst the remaining 75% is subject to income tax. You can choose when and how much to withdraw based on your needs.
Read the official government guide for more information on how and when you can take your pension.
Comparing Pension Drawdown vs UFPLS
Tax Implications and Tax-Free Cash Options
The tax implications of your withdrawals is a significant factor to consider when choosing between pension drawdown and UFPLS.
With pension drawdown, you receive a one-time tax-free lump sum of up to 25% of your pension pot, known as a Pension Commencement Lump Sum (PCLS). All subsequent withdrawals are then fully taxable as income. On the other hand, UFPLS withdrawals are split into 25% tax-free and 75% taxable income. UFPLS may be more tax-efficient if you plan to withdraw lump sums periodically, as it can help you remain in a lower tax bracket.
Flexibility
Both options offer flexibility, but in different ways.
Pension drawdown gives you continuous access to your invested funds. You can gain a regular income from your pension pot and make any ad-hoc withdrawals as you please, providing you with complete control over your investment and withdrawal schedule. However, UFPLS allows you to take lump sums as needed without committing to a drawdown plan. This option may be more suitable if you don’t have any ongoing pension income requirements and only need occasional access to funds.
Investments
It’s important to consider investment risk for both UFPLS and drawdown retirement approaches. With drawdown, your pension pot remains invested, but under different terms. This can be beneficial if your investments perform well – but poor performance could reduce your retirement savings. In contrast, with UFPLS, your pot may remain invested in the same way as it was during the accumulation phase, which may not be optimised for withdrawals. It’s therefore important to review your pension investments to ensure they accurately reflect your needs.
Future Contributions
It’s important to note that accessing your savings through either method could affect your future pension contributions. The Money Purchase Annual Allowance (MPAA) limits the amount you can contribute to a money purchase pension each year. This is triggered when you start taking money through drawdown or UFPLS, reducing your annual pension contribution allowance from £60,000 to £10,000 (2024/25). It’s vital that you understand these implications, especially if you plan to continue working and contributing to your pension.
How to Make the Right Retirement Withdraw Choice
Consider your personal circumstances carefully before choosing your retirement withdrawal strategy. You’ll need to:
- Assess your financial situation including your current savings, expected retirement expenses, and any other sources of income or outgoings
- Consider how each withdrawal option would affect your tax liability
- Decide whether you prefer to keep your funds invested, or would rather access them directly
- Seek professional advice from a financial adviser like Piercefield Oliver
Comprehensive Retirement Planning Advice from Piercefield Oliver
For those who do not favour a guaranteed income in retirement (such as an annuity), deciding between pension drawdown and UFPLs is a key consideration. At Piercefield Oliver, we specialise in providing tailored pension and retirement planning services that can help you navigate these difficult decisions with ease. Our team of expert advisers offer personalised advice and support on making the right pension withdrawal choice that aligns with your long-term goals and lifestyle needs.
Book your free consultation today and discover how we can support you on your retirement journey.
Louise Oliver
Founding Partner
Piercefield Oliver
Both pension drawdown and UFPLS allow flexible access to your pension, but drawdown lets you take an adjustable income, while UFPLS provides lump sums with varying tax implications.
The best pension withdrawal strategy depends on your financial goals, tax situation, and retirement needs. Seeking professional advice ensures you make tax-efficient decisions.
With both drawdown and UFPLS, you can typically withdraw 25% tax-free from your pension. The remainder is taxed as income, affecting your overall retirement income strategy.
Pension drawdown allows you to control your retirement income, providing flexibility but requiring careful planning to ensure your funds last throughout retirement.
With UFPLS, 25% of each withdrawal is tax-free, while the rest is taxed at your income rate. Pension drawdown offers greater flexibility but requires careful tax planning.