In brief
Crystallisation is the event that moves pension money from its pre-retirement state into drawdown, releasing the 25% tax-free lump sum and starting the clock on taxable withdrawals from the remaining 75%.
In plain English
A UK pension starts its life uncrystallised. While uncrystallised, nothing has been drawn, no tax-free lump sum has been taken, and no income tax is owed. Once the scheme member decides to access the pension, a crystallisation event occurs. The scheme splits the pot: up to 25% can be taken as a tax-free lump sum, and the rest moves into a flexi-access drawdown account where it continues to grow but where any withdrawal is taxed as income.
Crystallisation can happen all at once (crystallise the whole pot on day one) or in slices over many years. The UK tax code offers two distinct mechanisms for accessing a pension this way, and they produce different cashflow profiles:
- Phased drawdown (also called phased crystallisation) — a tranche of the uncrystallised pot is crystallised. 25% is paid immediately as a tax-free lump sum (the Pension Commencement Lump Sum, or PCLS); the remaining 75% moves into a flexi-access drawdown account. Any later withdrawal from that drawdown account is 100% taxable — the tax-free portion has already been paid out.
- UFPLS (Uncrystallised Funds Pension Lump Sum) — a single payment is drawn directly from the uncrystallised pot. 25% of that payment is tax-free and 75% is taxable as income. Nothing moves into a drawdown account; the tax-free and taxable elements emerge together in one transaction.
The practical effect is that phased drawdown separates the tax-free lump sum from the taxable income in time (the PCLS arrives on crystallisation, the taxable income later), while UFPLS combines them in every payment.
How FutureClear models it
FutureClear treats UFPLS and phased drawdown as two distinct mechanisms, matching the UK tax code. Each SIPP in the asset register exposes two internal sub-balances: an uncrystallised portion and a crystallised (flexi-access drawdown) portion. Both grow at the parent SIPP's rate and pay the same fees. Which mechanism applies at any given withdrawal depends on the scenario's withdrawal-order configuration.
Phased drawdown (PENSION_DRAWDOWN)
When the withdrawal order routes income through phased drawdown, the engine first crystallises a tranche from the uncrystallised portion:
- 25% is paid as a tax-free lump sum (PCLS) to the operating cash account. No income tax applies.
- 75% moves into the crystallised portion, where it continues to be invested as drawdown money.
Any subsequent income drawn from the crystallised portion is 100% taxable — the tax-free element was already paid out as PCLS at the point of crystallisation. The engine adds that income to the taxable total for the year and runs it through the income tax calculation described in Tax breakdown.
UFPLS (PENSION_UFPLS)
When the withdrawal order routes income through UFPLS, the engine draws directly from the uncrystallised portion. 25% of every UFPLS payment is tax-free and 75% is taxable income for the year. Nothing moves into the crystallised portion; the uncrystallised balance simply reduces by the full payment amount. This is the single-payment form that combines the tax-free and taxable elements in each transaction.
Which applies in your scenario
The withdrawal order configuration determines the mechanism. Selecting a SIPP source as UFPLS routes income through the UFPLS path above. Selecting it as flexi-access drawdown routes income through phased crystallisation followed by a taxable withdrawal from the crystallised portion. The two paths produce different tax profiles over time and cannot be used interchangeably.
Worked example
Assume a £400,000 uncrystallised SIPP and a scenario that needs £20,000 of net drawdown this year. The two mechanisms produce different cashflows.
UFPLS path:
- A single UFPLS payment of £20,000 is drawn from the uncrystallised portion.
- £5,000 (25%) is tax-free. £15,000 (75%) is taxable as income.
- Taxable income for the year rises by £15,000. Tax is computed against the scenario's tax parameters.
- The uncrystallised portion ends at £380,000 (plus any growth). No money enters the crystallised portion.
Phased drawdown path:
- The engine crystallises a £20,000 tranche from the uncrystallised portion.
- £5,000 (25%) is paid immediately as PCLS to the cash account. No income tax applies.
- £15,000 (75%) moves into the crystallised (drawdown) portion.
- The scenario then draws £15,000 of income from the crystallised portion to meet the £20,000 target (£5,000 PCLS + £15,000 drawdown = £20,000 gross). That £15,000 is 100% taxable.
- The uncrystallised portion ends at £380,000; the crystallised portion ends at £0 because the drawdown cleared it.
In this specific case both mechanisms produce the same tax bill for the year. The difference becomes material when crystallised money is left invested rather than drawn immediately: under phased drawdown, the PCLS is taken up front and the 75% can grow in drawdown before being taxed on later withdrawal. Under UFPLS, the tax-free element is only released in proportion to each payment, so money remaining uncrystallised keeps its full 25% tax-free entitlement intact.
Assumptions and limitations
The engine assumes the 25% tax-free entitlement is always available at the point of crystallisation. It does not model the Lump Sum Allowance (LSA) cap of £268,275 or the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100, which together replaced the Lifetime Allowance in April 2024.
Quick check: if the combined value of all your pension schemes is below approximately £1,073,100, the LSA cap does not bind and the engine's 25% calculation is unaffected. The LSA cap of £268,275 is 25% of £1,073,100, so it only begins to bite as total pension value approaches that threshold.
Above this threshold, the engine overstates the tax-free entitlement — the excess tax-free amount shown in the projection is not actually available. An LSA adjustment must then be applied manually, and the tax-free figures in the projection are only an upper bound until an LSA check has been performed against HMRC guidance or with a qualified professional.
Minimum Pension Age rules are not enforced by the engine. If a scenario draws from a SIPP before age 55 (rising to 57 in April 2028), the calculation proceeds as if the withdrawal were permitted. The user is responsible for configuring scenarios within the legal access age.
The engine does not model small pots rules, trivial commutation, or serious ill-health lump sums. It treats all crystallisation as flexi-access drawdown with the standard 25% / 75% split.
Defined benefit pensions are not crystallised in the same way and are modelled separately as income streams rather than as drawdown balances.