Crystallisation & Uncrystallised Funds
Think of your pension pot like a locked fund; this is your Uncrystallised pot. The money grows tax-free, but you can't draw an income from it directly.
When you're ready to access your money (from age 55, rising to 57), you "unlock" or crystallise a portion of it. This is the point you can take your Tax-Free Lump Sum (TFLS). The remaining 75% of the crystallised portion is moved into a new, accessible pot—your Crystallised fund. It's from this crystallised pot that you draw your regular, taxable retirement income.
Money Purchase Annual Allowance (MPAA)
This is a very important rule to be aware of. Normally, you can contribute up to your annual allowance (£60,000 for most people) into your pensions each year.
However, the moment you flexibly access a taxable income (Crystalise) from your DC pension for the first time, you trigger the MPAA. This permanently reduces the amount you can contribute to DC pensions in the future to a much lower limit (currently £10,000 per year).
Common Triggers: The most common actions that trigger the MPAA are taking your first payment from a flexi-access drawdown fund (the crystallised pot) or taking an Uncrystallised Funds Pension Lump Sum (UFPLS).
Consequence: Once triggered, you also lose the ability to "carry forward" any unused allowance from previous tax years. This is a key reason to carefully consider when and how you first take a taxable income from your pension.
DC (Defined Contribution) Pension (Or SIPP see below)
This is the most common type of modern pension. You and your employer make contributions into an investment pot. The final value of your pension depends on how much is contributed and how well those investments perform. The investment risk is on you, as the final amount is not guaranteed. A SIPP and most modern workplace pensions are DC pensions.
DB (Defined Benefit) Pension
Often called a "final salary" or "career average" pension. Unlike a DC pension, a DB scheme promises to pay you a guaranteed, predictable income for the rest of your life. The amount is based on a formula, usually involving your salary and the number of years you worked for the employer. With a DB pension, the investment risk is on your employer, who is responsible for ensuring there's enough money to pay your promised income.
Drawdown (Flexi-Access Drawdown)
Drawdown is the process of leaving your pension pot invested during retirement and drawing a flexible income from it as and when you need. This is the main strategy that the calculator models. The alternative is using your pot to buy an annuity.
ISA (Individual Savings Account)
An ISA is a tax-efficient savings "wrapper". You can save or invest a certain amount each year (your annual ISA allowance), and all returns are completely free from UK income tax and capital gains tax. This makes ISAs a powerful tool for retirement planning, as any money you withdraw from them is 100% tax-free and does not count towards your taxable income for the year.
Personal Allowance
This is the amount of income you can receive each year before you start paying income tax. The State Pension is paid to you without tax being deducted, but it uses up your Personal Allowance first. Any allowance you have left over can then be used to receive other income (like from a SIPP or a DB pension) tax-free.
SIPP (Self-Invested Personal Pension)
A SIPP is a type of DC pension that gives you the freedom to choose and manage your own investments. Unlike a standard workplace pension where your investment choices might be limited, a SIPP gives you access to a wide range of assets like stocks, bonds, and funds. Contributions receive tax relief, and withdrawals are subject to standard pension rules (typically 25% tax-free, the rest is taxable).
TFLS (Tax-Free Lump Sum)
Also known as the Pension Commencement Lump Sum (PCLS), this is your right to take up to 25% of your pension pot value as a tax-free lump sum. This is typically available from age 55 (rising to 57 in 2028). Taking a TFLS is a crystallisation event. For example, taking a £10,000 TFLS would crystallise £40,000 of your pension, with the remaining £30,000 moving into a crystallised pot for taxable income.
Frontloading
A strategy that allows you to plan for a higher income in the early, more active years of your retirement (often called the 'go-go' years). You can set a percentage boost to your target income, which the calculator will then smoothly reduce back to your baseline target over the first 20 years of retirement then onward over the next 20 to the minus % of your input. This is useful for planning larger expenses like travel while you're younger. But as all money comes from somewhere; taking more up front means having less income in later years!
UFPLS (Uncrystallised Funds Pension Lump Sum)
This is a flexible way to access your pension without moving the whole pot into drawdown. It is core to the calculator. With an UFPLS, each withdrawal you make from your uncrystallised pension pot is made up of two parts: 25% is tax-free, and the other 75% is taxed as income. It's useful for taking one-off lump sums or a flexible income.
Disclaimer: This calculator is for illustration only. It is not financial advice, and it can’t predict the future. Results are based on your inputs and assumptions, which may not reflect real-life outcomes. Investments can fall as well as rise, and you may get back less than you invest. You remain responsible for your financial decisions and may wish to seek professional advice.