UFPLS: A Flexible Route to Tax-Efficient Pension Withdrawals
When approaching retirement, one of the most important questions is how to draw income from your pension in a way that balances lifestyle needs with tax efficiency. While many high earners are familiar with Pension Commencement Lump Sum (PCLS) or Flexi-Access Drawdown, a lesser-used but highly flexible option is UFPLS (Uncrystallised Funds Pension Lump Sum).
What is UFPLS?
UFPLS allows you to withdraw lump sums directly from your uncrystallised pension pot without needing to designate funds to drawdown or purchase an annuity. Each withdrawal is treated as a mix of:
- 25% tax-free cash
- 75% taxable income (at your marginal rate of income tax)
Unlike the traditional PCLS model, UFPLS lets you spread these withdrawals over time, allowing you to manage your taxable income more precisely.
Why Consider UFPLS?
For high earners and those with complex financial planning needs, UFPLS can be a powerful tool. Some of the advantages include:
- Tax Efficiency Through Phased Withdrawals
Instead of taking your entire 25% tax-free lump sum upfront, you can spread it across multiple withdrawals. This means you can keep taxable income within lower brackets year by year, avoiding unnecessary exposure to higher-rate or additional-rate tax.
- Bridging Retirement Gaps
If you plan to retire early or reduce working hours, UFPLS can provide flexible income to cover shortfalls until other assets or state pension benefits kick in.
- Avoiding Unnecessary Crystallisation
Unlike designating funds into drawdown, UFPLS leaves your remaining pension uncrystallised. This can be advantageous for death benefit planning, as uncrystallised funds retain certain inheritance tax benefits and flexibility.
- Simplicity and Control
For some clients, UFPLS can be administratively simpler. It allows targeted lump sums as and when required, rather than committing to a structured drawdown arrangement.
UFPLS in Action: Example
Consider a 58-year-old recently retired professional with a £1,000,000 pension pot and no immediate need for a large lump sum.
UFPLS Example – 58-Year-Old, No Other Income, Maximising Basic Rate Band
Key 2025/26 Tax Allowances
- Personal allowance: £12,570
- Basic rate band: £37,700
- Total before higher rate tax: £50,270
UFPLS Withdrawal
- Total withdrawal (UFPLS): £67,027
- Tax-free 25%: £16,757
- Taxable 75%: £50,270
Tax Calculation
- First £12,570 = tax-free personal allowance
- Next £37,700 taxed at 20% = £7,540
- Total tax due = £7,540
Net Cash in Hand
- Tax-free portion: £16,757
- Taxable portion after tax: £42,730
- Net received: £59,487
Effective Tax Rate
Now let’s measure the tax burden relative to the whole withdrawal:
Tax Paid = £7540
Total Withdrawn = £67,027
£7540 / £67,027 x 100 = 11.24%
Key Considerations
- MPAA Trigger: Once you take UFPLS, the Money Purchase Annual Allowance (£10,000 in 2025/26) applies, restricting future pension contributions.
- Tax Band Awareness: The taxable 75% counts as income in the year of withdrawal. Strategic planning is vital to avoid breaching higher tax bands.
- Impact on Benefits: Withdrawals may affect entitlement to certain allowances or benefits, such as the Personal Allowance taper.
- Provider Rules: Not all pension providers offer UFPLS, and some impose minimum withdrawal amounts.
- Withdrawals that seek to maximise the lower rate tax band availability may not be sustainable in the long term. You should seek advice before acting.
Is UFPLS Right for You?
UFPLS is not a one-size-fits-all solution. For some, a mix of UFPLS, Flexi-Access Drawdown, and PCLS may provide the optimal combination of income flexibility, tax efficiency, and legacy planning.
At Carlile Alexander Private Wealth, we specialise in helping high earners and business owners structure retirement income in the most tax-efficient way possible. Whether it’s using UFPLS to bridge early retirement or creating a long-term withdrawal strategy, we ensure every pound of pension wealth is working hard for you.
⚖️ Important Information
The information contained here is based on our understanding of current taxation (2025/26) which may change in future. This article is for general information and does not constitute personal financial advice. Clients should seek tailored advice before taking action.
Carlile Alexander Private Wealth is authorised and regulated by the Financial Conduct Authority (FCA No. 788766).
