Summary:
Timeline Planning offers comprehensive modeling for Flexi-Access Drawdowns and Uncrystallized Funds.
Flexi-Access Drawdowns are treated as crystallized funds, already tested against the member's LTA.
Benefit Crystallisation Events (BCEs) are incorporated to test the value of pension benefits against the member's LTA.
The aim is to simplify the complex world of UK taxes and retirement planning.
Introduction
Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from pension schemes without triggering an extra tax charge. 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 Lifetime Allowance
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 LTA. 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 LTA 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. 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 Lifetime Allowance. Understanding how these elements are modeled in Timeline can help you prepare a financial plan your clients love.