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Readers' forum : Pension confusion

19 September 2017
Issue: 4616 / Categories: Forum & Feedback

How are lump sums from pension funds taxed after April 2015?

I am hoping someone can provide me with a beginner’s guide to the taxation of lump sums from pension funds since April 2015.

My understanding is that we now have two ways of obtaining a lump sum from a pension fund as follows:

  • put the fund into (flexi-access) drawdown; or
  • take an uncrystallised funds pension lump sum (UFPLS).

With drawdown my understanding is that up to a quarter of the value of the fund can be taken tax-free. Therefore it is not necessary to start drawing the pension just because it is in drawdown because the undrawn fund can remain invested and growing. However I believe that with UFPLS it is 25% of what is taken out that is tax-free.

With this in mind drawdown appears to offer the potential for a higher amount to be taken...

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