Summary
Uncrystallized funds are part of the Self-Invested Personal Pension (SIPP) that have not yet been crystallized
Timeline Planning models events where these funds are tested against the member’s available Lump Sum Allowance (LSA).
The platform supports different crystallisation scenarios, such as full crystallisation or phased withdrawals.
Examples are provided to illustrate how tax-free cash and taxable income are calculated.
Introduction
In the realm of retirement planning, understanding Uncrystallized Funds and how they interact with the Lump Sum Allowance (LSA) is crucial. In Timeline Planning, we model these events to give you a comprehensive view of your financial landscape. This article explains how uncrystallized funds are treated, especially in relation to planned withdrawals and the tax-free cash available under the LSA.
Withdrawals from Uncrystallized Funds
Withdrawals from Uncrystallized funds are treated as crystallisations. When funds are crystallised, up to 25% of the crystallised amount may be taken tax-free, subject to the member’s remaining LSA. The remaining 75% is taxed.
Our model is flexible, allowing for either phased crystallisations (smaller lump sums) or a single Pension Commencement Lump Sum (PCLS). Tax is then calculated based on the member’s remaining LSA and the nature of the planned spending.
Examples of Crystallisation with PCLS
Example 1: John has £400,000 in his Uncrystallized account with his full £268,275 LSA available. Crystallizing the entire account, John receives £100,000 tax-free and pays £121,203 in income tax, leaving him with £278,797 net income. His remaining LSA reduces to £168,275
Example 2: John has £400,000 but only £50,000 in available LSA. He crystallizes £200,000, receiving £50,000 tax-free. The remaining £150,000 is subject to income tax equal to £53,703. His remaining LSA reduces to £0.
Conclusions
We hope this article and its real-life examples help you understand how Uncrystallized funds and the Lump Sum Allowance (LSA) are modelled in Timeline Planning. Our aim is to make navigating the new UK pension tax rules simpler, giving you clarity and confidence in planning for retirement.