Summary
Uncrystallized funds are part of the Self-Invested Personal Pension (SIPP) that hasn't been crystallized.
Benefit Crystallisation Events (BCEs) test the value of benefits against the member's lifetime allowance.
Three types of BCEs are modeled: BCE1, BCE4, and BCE6.
Examples are provided for each type of BCE to illustrate tax implications.
Introduction
In the realm of retirement planning, understanding Uncrystallized Funds and Benefit Crystallisation Events (BCEs) is crucial. In Timeline Planning, we model these elements to give you a comprehensive view of your financial landscape. This article aims to elucidate how these are treated, especially concerning gross planned spending.
BCE6 General Functionality
Withdrawals from Uncrystallized funds are treated as crystallizations. 25% of the withdrawn amount is tax-free, and the remaining 75% is taxed. Our model is flexible, allowing for either smaller lump sums or Pension Commencement Lump Sums (PCLS), with tax calculated based on available allowance and the nature of the planned spending.
Examples of BCE6 with Pension Commencement Lump Sum (PCLS)
Example 1: John has £400,000 in his Uncrystallized account with 100% available allowance. Crystallizing the entire account, John receives £100,000 tax-free and pays £121,203 in income tax, leaving him with £278,797 net income.
Example 2: John has £400,000 but only £200,000 in available allowance. He crystallizes £200,000, receiving £50,000 tax-free. He pays £50,000 in Lifetime Allowance (LTA) charges and £121,203 in income tax, leaving him with £228,797 net income.
BCE1 General Functionality
Timeline allows for designated funds to provide a drawdown pension. You set up an Uncrystallized account and a Flexi-Access Drawdown account, then make a contribution from the former to the latter. 25% is withdrawn tax-free, and the remaining 75% is transferred to the Flexi account, to be taxed upon withdrawal.
Example for BCE1
Example 4: John has £400,000 in his Uncrystallized account with 100% available allowance. He crystallizes the entire account, receiving £100,000 tax-free and paying £121,203 in income tax, leaving him with £278,797 net income.
Conclusions
We hope this article and its real-life examples help you understand how Uncrystallized funds and Benefit Crystallisation Events are modeled in Timeline Planning. Our aim is to make navigating the complex world of taxes and financial planning easier for you.