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Crystallised pension: the Difference and calculator

There is a lot of jargon used when it comes to the word pension, so it is not always easy for the average man and woman in the street to fully understand what is being said. Take the term crystallised pension as an example. In this Moneyfarm blog, we discuss crystallised and uncrystallised pensions in everyday language, explaining what they are and what you can and can’t do with them.

What is a crystallised pension?A crystallised pension is a pension that has been withdrawn from
The earliest you can crystallise your pension?Currently, age 55
What happens to my uncrystallised pension at 75?It will be subject to a lifetime allowance test
Can I transfer a crystallised pension?Yes, you can transfer a crystallised pension but you have to transfer the whole amount

When your personal pension pot (the total value of the pension fund) is intact because you haven’t made any withdrawals, you have what is known in the trade as an uncrystallised pension. 

When you withdraw money from the fund through tax-free lump sums (up to a total value of 25% of your fund), buy an annuity, or set up a drawdown fund, your investment becomes a crystallised pension. 

So, in a nutshell, a UFPLS (Uncrystallised Fund Pension Lump Sum) refers to the money you can take from your pension that has not been accessed previously in any of the ways described above.

To be clear. We are talking about your private personal pension, not your state pension. Your state pension is usually paid in arrears every four weeks unless we are discussing deferring state pension.

Under normal circumstances, you start receiving your state pension when you are 66 years old. This applies to men and women. You can click the retirement age and the state pension page to learn more about the UK retirement age.

As far as private pensions are concerned, under normal circumstances, the earliest you can access crystallised funds is at the age of 55. At that stage, you can withdraw up to 25% as a tax-free lump sum or use the crystallised pension fund to buy an annuity. However, the government plans to increase the age to 57 from 2028. 

Today, more and more people are exploring the possibility of retiring younger. There is an informative article on the Moneyfarm website if you want to learn more about 50s retirement savings.

What is an annuity?

You may have noticed we slipped in another piece of jargon above – the word “annuity.” If you are unfamiliar with the term, an annuity is a type of insurance. It is designed to allow you to use all or part of your crystallized pension to secure a guaranteed regular income for the rest of your life.

Before pension freedoms came into being, purchasing an annuity was your only option if you had a defined contribution pension. So here we go – more jargon. A “defined contribution pension” is a pension you contribute into throughout your working life to build up a pension pot or lump sum.

What rules apply to pension drawdown?

Now you know the difference between crystallised and uncrystallised pension funds and what an annuity is, what other options are open to you? What is pension drawdown?

Drawdown pensions are any private pensions that allow you to drawdown or withdraw the funds they contain. As you now know, the first time you do so, it will change the pension from an uncrystallised to a crystallised pension.

The different types of pension crystallisation

If you choose not to convert your uncrystallised pension fund into an annuity, you have several drawdown options open to you, depending on what your pension provider allows. You can:

  • Take up to 25% of your pension fund in one lump sum, called a Pension Commencement Lump Sum or PCLS, or take it in several smaller lump sums.
  • Go down the Flexi-Access Income Drawdown route by taking up to a 25% tax-free funds pension lump sum and scheduling further withdrawals as income on a monthly, quarterly, or annual basis.
  • Take some of your pension fund as income and leave the rest invested where it is Uncrystallised Fund Pension Lump Sum (UFPLS), to grow hopefully, but still have the option to take further lump sums, when necessary, as and when you choose.
  • Withdraw up to 25% tax-free and spit the remainder between an annuity and income drawdown.
  • Drawdown the entire pension fund in one go, but be aware of the tax implications laid down by the income tax rates and allowances published on the GOV.UK website.

However, please bear in mind that your pension provider may only support some of these options. Therefore, you will need to check with them. 

The other thing you need to bear in mind with any investment is that the value of your fund can fall and rise.

Transferring pensions

Many people accumulate several pensions during their working lives. Having several pensions, some significant, some not so, can be challenging to manage. You can end up with several uncrystallised funds pension lump sums. Transferring these pensions can help to ensure that any tax charged is minimised. You can find out more about pension transfer from Moneyfarm.

Pension crystallisation at 75 

Once upon a time, becoming 75 years of age was very significant because it meant you had to use your pension funds to buy an annuity. But unfortunately, that is no longer the case. 

But, on reaching age 75, your crystallised and uncrystallised pension funds will undergo a test against the lifetime allowance. Everyone has a lifetime allowance. It is the maximum amount you can have in pension funds over your lifetime. For most people, that amount is £1,073,100. 

“Benefit crystallisation events” happen each time you withdraw money in crystallised funds, and the withdrawals are subtracted from your lifetime allowance. Also, turning 75 is often described as a benefit crystallisation event.

For most people, nothing changes on reaching 75, but it can make a difference to inheritance tax. 

How to avoid paying tax on your pension drawdown

Like most issues on income tax and how much you pay, it’s all about the tax year. You will avoid paying any income tax if your crystallised benefits are below the income tax threshold for any given tax year. Once you exceed the threshold, you will pay according to which band your income falls into.

You can use an online pension crystallisation calculator to see what your crystallised pension could be worth. Moneyfarm’s pension calculator is also worth a shot.

Organising your pension

The odds are that you are already in a workplace pension, but the crystallised pension fund or crystallised pension drawdown probably won’t be enough to give you the lifestyle you aspire to in retirement. 

A SIPP could well be the answer. It is one of the many pension options we here at Moneyfarm can advise you on, and it is a good option when it comes to a self-employed pension. SIPP crystallisation drawdown is worthwhile exploring as an alternative or an additional option to the state pension.

Moneyfarm is an independent financial adviser service authorised and regulated by the Financial Conduct Authority. So if it’s advice on how to invest money you’re looking for, we are here to help.


What is the difference between Crystallised and Uncrystallised pension funds?

A crystallised pension fund is a pension fund that has an annuity, a drawdown scheme or has had a tax-free lump sum withdrawn from it. An uncrystallised pension fund is the opposite of a crystallised pension fund. It’s a pension fund that is yet to be accessed or withdrawn from, it is not measured against Lifetime Allowance until age 75, and income tax does not apply.

Can I still pay into a Crystallised pension?

Yes, there is nothing stopping you from making pension contributions into a crystallised pension or if you are in drawdown. You’ll continue to receive tax relief on any personal contributions if you are under 75 and do not exceed the annual allowance limit.  

The pension annual allowance threshold for the 2022-23 tax year is £40,000. However, once you take money out of your pension, the annual allowance at which you can still earn tax relief drops to £4,000. This is called a Money Purchase Annual Allowance or MPAA.

Can I take 25% of my pension tax-free every year?

Yes, you can take out 25% of your pension tax-free yearly using the ‘uncrystallised funds pension lump sums’ or ‘UFPLS method. Each time you take out a lump sum from your pension, 75% will be taxed, while 25% is tax-free. 

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.