Uncrystallised Funds Pension Lump Sums (UFPLS)

Last Updated: 6 Apr 24 10 min read

Uncrystallised funds pension lump sums (UFPLS) were introduced by "pension freedoms" and allow pension holders to withdraw some, or all of their uncrystallised funds as a lump sum.  

Key Points

  • UFPLS are a way of taking cash lump sums from a pension without purchasing a product.
  • Up to 25% of an UFPLS is tax free and the rest is taxed at marginal rate.
  • Emergency tax will normally apply to the first payment.
  • Whether an UFPLS can be taken will depend on scheme rules, and/or if some protections are in place.

What is an UFPLS?

From 6 April 2015, if a client wants to access some or all of their money purchase pensions savings without designating funds as available for drawdown or buying an annuity (or scheme pension), then UFPLS is one way to do this (provided that this option is allowed under the contract).

To qualify as an UFPLS:

  • it must be payable from uncrystallised rights under a money purchase arrangement that is not a collective money purchase arrangement
  • the client must have reached normal minimum pension age (currently 55), or meet the ill-health conditions, or have a protected early retirement age.

An UFPLS is not allowed:

  • where the member has LTA protection in the form of enhanced and/or primary protection with protected lump sum rights (lump sum rights over £375,000 at 5th April 2006) 
  • from a disqualifying pension credit, because no tax free cash is payable (This would be the case where someone is divorced and has received a pension credit from a pension sharing order. If the pension credit comes from benefits which were already in payment at the time of the court order then the opportunity to take a PCLS has already been taken or has passed and this is known as a disqualifying pension credit)

An UFPLS must be payable with 25% of it tax free where there is an enhancement factor:

  • primary protection,
  • periods of non-residence,
  • transfers from recognised overseas pensions schemes, or
  • pension credits prior to 6 April 2006. 

Why was UFPLS introduced?

The Government wanted people to have greater flexibility in retirement benefit choice. They did not wish clients to feel forced into taking pension income products and be able to easily access funds as lump sums. This greater flexibility (removing all requirements to take regular income) may encourage more people to save for retirement.

Before 6 April 2015, taking uncrystallised funds as a lump sum (without the appropriate designation to provide income) attracted hefty tax charges (unauthorised payment tax charges). So UFPLS brings more flexibility than was previously available. It also removes the need for the triviality lump sum which was, as a consequence, abolished from 5 April 2015 for Defined Contributions schemes (but triviality remains for Defined Benefit schemes).

An uncrystallised funds pension lump sum can be paid as an authorised member payment to a member from uncrystallised funds held in a money purchase arrangement for that member. Uncrystallised funds are funds held in respect of the member which have not, as yet, been used to provide that member with a benefit under the scheme (so have not crystallised for allowance purposes). If the money purchase arrangement is a cash balance arrangement, uncrystallised funds in the arrangement are the funds there would be in the arrangement if the member decided to draw benefits on a particular date, not the funds actually held in the cash balance arrangement at that time.

How is an UFPLS taxed?

Before 6th April 2024

Taking an UFPLS was a Benefit Crystallisation Event so tested against the LTA. The income tax treatment was linked to the LTA.  

Under age 75 - sufficient LTA was required to pay out so the tax free amount was a fixed 25% of the lump sum, the balance was taxed as pension income.

After age 75 - there just had to be some LTA remaining to pay out.  The tax free amount was 25% of the remaining LTA and the balance was taxed as pension income.

After 6th April 2024

Taking an UFPLS is a  Relevant Benefit Crystallisation Event.

The income tax treatment is linked to the available LSA and LSDBA.  

The tax free element will be the lower of:

  • 25% of the lump sum,
  • the available Lump Sum Allowance, or
  • the available Lump Sum and Death Benefit Allowance.

The balance wil be taxed as pension income.

As no allowances are required to pay an UFPLS it is possible to get one that is 100% taxable.

There are some differences for those with Enhanced Protection which are covered in our Enhanced Protection article.

Example of how UFPLS is taxed

Actual Tax Liability

George has a fund of £120,000 and wishes to take the full fund as a lump sum. 

They have never taken benefits so have the full LSA of £268,275 available. They'll get £25,000 tax-free, with £75,000 taxed at their marginal rate. If this is the only income they have, they will fall into higher rate tax and get £82,500 after tax*.

*Tax calculation (using current tax year UK rates and allowances*)
£25,000 tax-free + £75,000 taxed
Tax (£12,570 x 0%) + (£37,700 x 20%) + (£24,730 x 40%) = £17,432
£75,000 - £17,432 = £57,568
£57,568+ £25,000 (the tax-free bit) = £82,568

If the same client decided that they only wished to withdraw sufficient to utilise their Personal Allowance they could take £16,760 UFPLS a year, they'd get £4,190 tax-free and £12,570 taxed at their marginal rate.

If they had no other income, currently their personal allowance would cover the £12,570 – so there would be no tax payable.

This produces the same result as accessing their funds using a phased strategy.

However, as soon as they start to receive State pension (or any other income that takes them over the personal allowance tax threshold), tax is payable on the sum of their income above the Personal Allowance (including the taxable element of an UFPLS).

Emergency Tax Basis

If the payment above was the first payment of benefits then it is likely that emergency tax will be applied to the payments from UFPLS.  Scheme administrators may apply emergency tax in respect of all UFPLS payments, even if a tax-code is held, as such, it is important to check the tax situation with the scheme administrator prior to drawing an UFPLS.

Using the same example as above, assuming no other income and Emergency Tax code for the current tax year – 1257L. The client will still receive £25,000 of the UFPLS tax free, but the actual tax raised on the balance would be:




PA £1,049  Nil
BRT £3,142 £628
HRT £7,287 £2,915
ART £63,522 £28,585
Total £75,000 £32,128

Therefore taxpayers will find that tax of £32,128 will be deducted using the emergency method, instead of the expected £17,432. So the payment they receive would be £67,872 and not £82,568. If this method means the client has overpaid tax they can ask for this to be repaid in the same tax year. Otherwise HMRC will calculate whether they have over or underpaid tax in the following year.

*Scottish taxpayers will pay the Scottish rate of income tax (SRIT) on non-savings and non-dividend (NSND) income. NSND income includes employment income, profits from self-employment (including sole trades and partnerships), rental profits, and pension income (including the state pension). Similarly, from 6 April 2019 Welsh Taxpayers pay the Welsh Rate of Income Tax (CRIT (C for Cymru)) on NSND income.

Money Purchase Annual Allowance (MPAA) Trigger

If the client takes an UFPLS, they will then be subject to the money purchase annual allowance rules. For more information on these rules, please see our article on Money Purchase Annual Allowance

Find us on LinkedIn

Sign up below where you will be the first to see any news, views or support we think matters. 

Sign up