Maximum employers contribution

TH1878 · 2 March 2015 at 10:24PM

nrsql wrote: »

It says that third party contributions (including employer) can still be caught by the recycling rule.
http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM04104920.htm

Reading further about examples that they say will not be caught makes it as clear as mud. Sounds like it's another one of those things which they reserve the right to interpret as they see fit but I think it's worth ignoring.

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM04104925.htm
>> The individual must still be shown to have intended to use the lump sum as the indirect means of making the increased contributions.

As you've indicated, it's probably worth ignoring.

They would have to prove that it was pre-planned that you were using the TFC, directly or indirectly, to make the contributions and you're clearly not because you're funding it from company profits.

Also, you would be making the contributions before taking the tax free cash so you could argue that your 'regular' premiums have not increased by more than 30%.

As I say, it's difficult to prove but the legislation isn't trying to catch business owners, like yourself, who are legitimately saving for retirement out. It's there to catch people who are trying to reinvest their tax free cash and get tax relief on it before doing it again and again.

If you're still worried, make two years of contributions before taking the tax free cash. They couldn't then argue that your contributions have increased significantly.

jamesd · 3 March 2015 at 1:19AM

If the reduction to 10k annual allowance is triggered you can't use carry-forward to circumvent it. But if you are just taking the GAD limit income from a "capped income drawdown" pot that much can be taken without triggering the reduction. You can also combine a pot built up from new money with an existing capped drawdown pot and will be allowed to take GAD limit income from the combined pot. Take a penny beyond GAD, or anything above the 25% tax free lump sum from the April 6 onwards flexi-access drawdown and you trigger the reduction. To take the 25% tax free lump sum from the new money you should combine the remaining 75% with the capped drawdown pot so you have that income option.

For the lump sum recycling rule to apply you have to fail all of the requirements. The easiest rule not to fail is often the total of all lump sums taken within a 12 month period being no more than 1% of the lifetime allowance, currently meaning £12,500. From 6 April 2015 this is reduced to £7,500 each 12 months.

HMRC has the potential to use a longer period than two years before the lump sum was taken to establish the base level of pension contributions, even though the rule says two years before, year of lump sum and two years after.

There are no rules restricting the recycling of pension income into new pension contributions. You may find it useful to use this with your capped drawdown income potential to limit the potential gain from the lump sum over the five years rule, since this would reduce the potential increase attributable to the lump sums.

nrsql · 3 March 2015 at 1:57AM

Thanks.
I don't plan to start taking income from the pension until my company runs out of money which will be in about 7 years if I stop work.
Of course things may change so it's good to keep it in mind.

Is that 1% of lifetime allowance in any 12 month period or a tax year. Might be worth arranging things to keep within it just in case.

jamesd · 3 March 2015 at 4:29AM

12 month period. Watch out for the decrease from 1% to £7500 from 6 April 2016.

nrsql · 3 March 2015 at 7:51PM

Asked my FA for the fees/charges for doing this and he said
3% on contribution but willing to reduce to 2% (including transfer to capped drawdown).
Ongoing typically 0.25% to host drawdown plus fund charges plus advisor servicing - total about 1.25%.

I haven't heard from him for 4 years (set up last drawdown in 2011) apart from one letter saying there's no need to do anything at the moment. He does say he has been processing annual reviews though.
Sounds a lot considering he doesn't seem to do much.
I think I could do the same thing through h-l (even) a lot cheaper.

TH1878 · 3 March 2015 at 9:50PM

:beer:

nrsql wrote: »

Asked my FA for the fees/charges for doing this and he said
3% on contribution but willing to reduce to 2% (including transfer to capped drawdown).
Ongoing typically 0.25% to host drawdown plus fund charges plus advisor servicing - total about 1.25%.

I haven't heard from him for 4 years (set up last drawdown in 2011) apart from one letter saying there's no need to do anything at the moment. He does say he has been processing annual reviews though.
Sounds a lot considering he doesn't seem to do much.
I think I could do the same thing through h-l (even) a lot cheaper.

He's not doing much to justify his charges, is he!

That said, there's plenty of mistakes that you can make with unintended consequences with drawdown so probably would be good to have a second pair of eyes and ears. I'd renegotiate your 'deal' with him to get a more comprehensive service.

nrsql · 3 March 2015 at 10:33PM

Yes - the mistakes bit is my main concern.
Also, he can't meet before next wednesday, then I am away for two weeks so it doesnt leave much time to get things sorted out.

Maximum employers contribution

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free