What’s a Crystallized Pension?

Crystallized Pension: What it Means and How It Works

As per the Employee Benefit Research Institute1, there has been a tremendous loss of property due to the market downturn in recent years, & it has made retirement plans worse. Today, most workers are uncertain about their capacity to retire & for a good reason. As per the statistics carried out, 32% of the workers in the UK aren’t confident about preparing the sunset years while 64% are behind in saving for their later years. Back in 2017, 75% of employees were actively saving for their retirement, but the number significantly decreased to about 66% in 2018, & it’s barely changed over the next two years. 90% of those with a retirement scheme invest in defined benefits2, & defined contribution schemes & 10% don’t know which plan to invest in. If you’re among the 10% & don’t know which pension scheme is ideal for you, here’s a detailed review of the crystallized pensions, how they work & the crystallized pension rules.
What’s A Crystallized Pension

Crystallized Pensions Defined

In case you might be wondering,

Crystallized pension works differently from the uncrystallized funds pension lump sum (UFPLS), which is a pension fund that hasn’t been capitalized through the drawdown scheme or annuity.

Crystallizing your pension scheme is typically the process of accrediting your investments and gaining access to your pension funds.

Crystallized pension plans sit outside your property for taxation purposes. While your finances are easily accessible, you won’t have to pay any taxes on your pension scheme until you start withdrawing cash from it.

How To Set Up Crystallized Pension Scheme

How To Set Up Crystallized Pension Scheme

So let’s get down to business,

What you need to do at first, if you take the crystallized pension scheme is to draw up to 25% of the capital as a tax-free lump sum1. It can also be referred to as a pension commencement lump sum (PCLS), and it’s one of the primary benefits of crystallizing a pension.

The other 75% of your pension fund is subject to income tax. Therefore, if you draw the cash again, you’ll have to pay 20% basic rate taxpayer, 40% for the higher rate, and 45% for supplementary rate taxpayers.

What Happens Next?

When you’ve crystallized your pension plan and drawn down your untaxed lump sum, you can opt between the drawdown scheme or purchase an annuity. The drawdown schemes enable you to keep your funds invested. At the same time, they also offer you access to your cash as and when you’ll require it.

Here’s the deal:

An annuity can be bought to safeguard a fixed pension income for a set period or for your lifetime, based on the type you purchase. You need to note that you can select the drawdown option before you buy the annuity. Nonetheless, once you’ve purchased the annuity plan, you’ll be locked in.

Crystallized Pension Rules

Crystallized Pension Rules

For one to crystallize your pension plan, you have to be aged 55 and above, or at least meet the set conditions for accessing your pension pot earlier on. You can opt to crystallize your defined contributions scheme or personal pension whenever you want to, from the age of 55.

Crystallized pension funds are a popular mode of gaining access to your capital. Nonetheless, you can get the uncrystallized funds pension lump-sum, if you’re not thinking of purchasing an annuity or taking the drawdown pension scheme. If you select this plan, every payment you make will be 25% untaxed with income tax charged on the other 75%. 

Got Questions? Check These First

What’s the Difference Between Crystallized and Uncrystallized Pensions?

What Are Crystallized Pension Benefits?

Can You Transfer A Crystallized Pension?

What Does Uncrystallized Pensions Mean?

In conclusion

To make it short,

Crystallized pension is a retirement plan that offers lump-sum payments to the retiree when they leave their job. This type of plan may be attractive for those who want more control over how and when they take withdrawals from their funds, but it also comes with more significant risks such as inflation or market volatility.


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