Drawdown and recycling

snowcat53

I would very much appreciate any advice on this question.
I may be about to be made redundant at the end of April and if so I could take my work pension at that point early and unreduced instead of a redundancy payout, and that would be much the best deal. The question is 'how much would I be allowed to pay into my SIPP in 13-14?' as I gather from jamesd this may be a good way of building a further TFLS later and I could also go into flexible drawdown if & when I wanted to ( i would meet the minimum income and other requirements)

I understand the limit is 2800 net if one is not earning but I will be paid in April and may also earn more later. If I put my SIPP into capped drawdown in April to take the TFLS, could I pay in at least as much as in previous 2 years (12k net into personal pension) without falling foul of recycling rules?

Re the recycling rules, what I don't understand is whether the amount paid in previous years (to check there hasn't been a significant increase' in contributions) is just what goes into personal pensions or if it includes money contributed by me into an occupation pension as well.

Thanks for your help.

jamesd

The limits are:

1. £3600 gross (including the tax relief) if not earning.

2. or the earned income in the year up to a maximum of £50,000, or more if you've been a member of a pension scheme in one or more of the last three years and didn't use the fill £50,000 in one or more of those years. All money paid into a pension counts against this limit, including employer contributions to occupational pension schemes and employer or personal contributions to group or other personal pensions.

For recycling a lump sum the rules are in RPSM04104900. The easiest rules to follow are one of these two:

A. take lump sums in a 12 month period that are not more than 1% of the lifetime allowance. The allowance is £1.5 million in 2012/13 and £1.25 million from 2013/14. So the 1% limits are £15,000 this year and £12,500 from next year.

B. or recycle additional lump sum amounts that are not more than 30% of the lump sum over several years, under the cumulative rule. Note that this is additional payments, so if you've been doing £12,000 a year, you can continue doing that much and the increase is nil.

There is no rule limiting pension income recycling, except the usual annual payment limits.

Employer contributions count in the lump sum recycling, presumably because of things like salary sacrifice arrangements.

snowcat53

Many thanks James, that's very clear.Just one question

jamesd wrote: »

£3600 gross (including the tax relief) if not earning.
.

By 'not earning', do you mean through employment? This then would be the limit if I had no income other than my work pension?

jamesd

Yes, "earned income", which in practice means PAYE income for those who aren't self-employed. So even if not working at all you have an allowance of £3600 gross a year.