A new word was coined yesterday in the lexicon of pensionology – Flump!
Credit must go to Will Robins of CityWire and Claire Trott of Talbot and Muir.
Many of us know the Flump as a marshmallow and there are other less happy definitions in the urban dictionary but the Pension Flump is a whole new ball game!
Will’s genius is to convert a sorry name to a great idea into something everybody loves- like a kitten!
And now you are totally intrigued- here it gets sad – Flumping is no more than the act of drawing your pension as an
Uncrystallised fund pension lump sum (UFPLS)
Don’t be fooled by this less than exciting name, this is a brand new way to take your pension. Much like the flexi-access drawdown fund you can leave your money in the pot and take it out when you need to.
However, the difference between UFPLS and flexi-access is the tax treatment of both the money you take out and the money left in your pension.
If you have £50,000 in the pension, the first 25% (£12,500) you take out under flexi-access is tax-free and any other money you withdraw after that is taxed as income. The money you have left is then taxed at 55% if you die.
Under UFPLS, the tax works slightly differently. If you have a £50,000 pension pot and you take out £10,000 the first 25% of that chunk you have taken (£2,500) would be tax free and the remaining £7,500 would be taxed as income. So you start paying income tax straight away but with each additional chunk of money you take out, the first 25% will be tax free.
This is not the only difference. Because of the way the money is taxed when it comes out the funds remaining are said to be ‘uncrystallised’ or in layman’s terms ‘untouched’ so it does not incur the 55% death tax if you die, provided the death is before age 75. This means any money remaining in your UFPLS pot can be passed to your family tax free.
Walker said this option would be better than flexi-access for an individual who is concerned about what they leave behind for their family.
‘The way in which you think about pensions may be different to mine, everyone is different. I may want to take some income out and leave as much as possible behind for the wife and kids and if that is the main priority then you should take income out [using UFPLS] and leave as much as possible behind without the government taxing the hell out of it,’ he said.
This looks to me as a very sensible way to draw your pension pot and the good news for those who have DC pots from a proper company pension (including AVCs) is that they too can be flumped!
There are of course some complications and you’d not want to Flump without looking at the small-print. If you’re the kind of guy who wants to cash your pension and then start saving more than £10k pa into another pension- then this is not for you. If you’re the kind of girl who has exceeded your lifetime allowance, then Flumping may not be your best bet.
But for most of us the message is clear and fun!
Don’t get the pension hump – FLUMP!