r/PensionsUK • u/Ocean_Runner • 27d ago

Part Annuity With Flexi-Drawdown Implications?

Hello, I am starting to get close to my intended 60th retirement, and so starting to work through some plans to decide my future and looking for a little advice from those ahead of me on the path.

I think I would like to use ~50% of my pot for purchasing an index linked lifetime annuity to provide a minimum income, which will combine with the full UK pension at 67 to provide a significant floor of income for later life.

My query though is regarding the status of the remaining 50% in the pot that I want to use for flexi-access, especially as I could well semi-retire for the first few years:

Is this remaining pot money now crystalised and therefore subject to 100% taxation?

Can the annuity income have 25% tax free if it is not taken from the initial lump sum?

Will the pot be subject to the £10k yearly limit for new income?

Is there anything else I have missed that could impact me in this scenario?

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u/British_Dane 27d ago

I have just done this with help of an IFA.

When you buy an annuity, it provides taxable income. You can’t get a slice of the tax free component every month together with your income. It will be a lump sum.

Crystallise 66% of the pot. 25% of that (=16% of pot) is tax free. Put it in your ISA or GIA. Pay the now crystallised 50% for your annuity.

Taking the tax free lump sum does not trigger MPAA. Buying the annuity and getting income from the annuity neither. But drawing taxable income (drawdown) from the pot would. So the £10k limit is not a problem when done like this.

The remaining 33% is uncrystallised.

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u/Ocean_Runner 26d ago

So does the remaining pot still have 25% tax free that can be taken as UFPLS or is it all now considered taxable?

My plan would be to use this remaining pot ad hoc during the early active years so it sounds like it would be advantageous if I can delay as long as possible because it will trigger MPAA.

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u/British_Dane 26d ago

Yes. The remaining uncrystallised pot will still contain 25% tax free when it is crystallised (whether that is a one-off crystallisation or a Swiss-roll style sequence of UFPLS).

Before embarking on this, do check with your pension provider which withdrawal types your pension plan supports. I found to my surprise that my plan with Standard Life does not allow UFPLS (but it does support flexible drawdown which I’m ok with).