Summary:
Timeline Planning offers comprehensive modelling for Flexi-Access Drawdowns and Uncrystallized Funds.
Flexi-Access Drawdowns are treated as crystallized funds that have been moved to drawdown, already tested against the member's LSA.
Timeline Planning incorporates events equivalent to the former Benefit Crystallisation Events (BCEs) to test pension benefits against the member’s LSA.”
The aim is to simplify the complex world of UK taxes and retirement planning.
Introduction
The Lump Sum Allowance (LSA) sets the maximum amount of tax-free lump sum an individual can take across all pensions. Any excess above the available LSA is taxable at their marginal income tax rate.”
This is a critical factor to consider when planning for retirement. Timeline Planning offers a robust platform that models various scenarios, including Flexi-Access Drawdowns and Benefit Crystallisation Events, to give you a comprehensive view of your financial landscape in retirement.
Flexi-Access Drawdown and LSA
Setting up a Flexi-Access Drawdown
In Timeline Planning, Flexi-Access Drawdown is treated as a crystallized fund, meaning it has already been tested against the member's LSA. Advisors can set up an Uncrystallized account and a Flexi-Access Drawdown account, then designate funds to provide a drawdown pension. 25% of this amount will be tax-free, and the remaining 75% will be transferred to the Flexi-Access Drawdown account, to be taxed upon withdrawal.
Example
Assume John has £400,000 in his Uncrystallized account with 100% of his LSA available. On crystallizing the entire sum, he will receive £100,000 tax-free, and the remaining £300,000 will be designated to the Flexi-Access Drawdown account, to be taxed upon withdrawal. John’s LSA will reduce to £268,275 - £100,000 = £168,275.
To do so, you need to go to Settings > Contributions & Transfers and create a new transfer from the Uncrystallized account to the Flexi-access drawdown account. As you can see on the cashflow chart, 25% is spent that year tax-free and the rest is transferred to the Flexi-access drawdown account:
Conclusions
Timeline Planning offers a nuanced approach to managing both Flexi-Access Drawdowns and Uncrystallized Funds, incorporating the complexities of the UK's tax system and LSA. Understanding how these elements are modelled in Timeline can help you prepare a financial plan your clients love.