Once you retire, SIPPs offer more than one option to release funds.
You could purchase an annuity, to provide monthly income to cover regular outgoings, and keep the remainder invested in your SIPP.
If you want to access a lump sum, there are two routes open to you. A drawdown allows you to take a lump sum, with 25% tax-free. You can then arrange for your SIPP to pay you a regular amount, every month or quarter for example, or continue to withdraw one-off sums but bear in mind how long you will want your retirement fund to last.
The good news is that you’re not limited to one method when it comes to accessing your pension and you can choose to ‘mix and match’ how you withdraw your funds.
FLUMPS and how they work
Financial services has enough jargon but here is another term that is worth knowing – uncrystallised funds pension lump sums (UFPLS), not a snappy name and somewhat confusingly often referred to by the ‘not quite perfect’ acronym FLUMPS.
So, what are they? An ‘uncrystallised funds pension lump sum’ refers to funds not already placed into a pension drawdown. It is significant for pension holders as it provides the option to take an ad hoc lump sum from a pension once you reach your 55th birthday.
FLUMPS allow you to withdraw 25% as a one-off amount, paid to you tax-free, with the remaining 75% taxed as income.