No brainer??

AJH748

Or am I missing something?

I have a pension that I can take now I am 60, but have not yet decided exactly what to do with it.

I have the option to take a percentage of it tax free.

I have also just been enrolled in our company Stakeholder pension with Scottish Widows.

If I take the lump sum and invest it in the new pension I assume I will get 40% tax relief on it which appears on first sight to be a good investment.

I am still in full employment and a high rate tax payer.

Is there anything else I should consider, but I certainly can't see a 40% profit in anything else!

Many thanks

Triumph13

I have a shrewd idea what you may be missing. Try googling lump sum recycling rules. There are specific rules to try to stop you from recycling a pension lump sum into a new pension which you will need to comply with.

atush

Of course if he has enough income to cover the LS, it would be easy to spend the LS on living costs and put more income into his pension?

In any case, I would be whacking as much income that is HRTaxed into pension as I could.

mania112

You can't recycle the lump sum - and Atush backdoor method is a bit risky. If it was ever checked out, the fact you received the lump sum in the same year as the contribution back in, you'd be in for an unpleasant run-in with HMRC.

But you can certainly recycle the income and it's a legitimate strategy if you don't actually need the money yet. Just have to make sure your income covers all your contributions into both pensions you'd have.

srcandas

I went through this recycling thing including the possible missinterpretation of taking out and paying in in the same year a couple of years ago. I received quite a bit of miss-information here and even was accused of fiddling tax.

However I went to HMRC.

HMRC put me on to an HMRC expert who told me that I would have to be in breach of all 6 listed requirements on their web site and that I could do what I required. It struck me that recycling is easily understood as a headline and not well understood in detail.

Please check the rules then speak to HMRC as necessary. They are very helpful once you get through

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104920.htm

"It should be noted that very few lump sum payments will be affected by this recycling rule. Pension commencement lump sum payments will not be caught if they are paid as part of an individual’s normal retirement planning."

Not saying you can do it as I don't know the details but it is worth you finding out from the horses mouth

AJH748

Many thanks for all the replies.

I'll do a bit more digging as suggested.

It does make me wonder what the value of things like ISA's are though :think:

srcandas

AJH748 wrote: »

It does make me wonder what the value of things like ISA's are though :think:

For me they simply remove administration and make my tax return easier. I can play with shares and no hassle. That's worth a great deal to me.

Do they make me money? No. But for others I'm sure they do. Especially higher rate tax payers :cool:

Annie1960

srcandas wrote: »

Please check the rules then speak to HMRC as necessary. They are very helpful once you get through

Try phoning them at 8am - it's often easier to get through early in the morning.

AJH748

Will do - thanks again

PensionTech

Agree with srcandas that you should speak to HMRC - but in this case it does very much sound like you will fall foul of the recycling rules. To expand on the HMRC quote provided earlier:

An individual might pay significantly greater contributions as part of normal retirement planning and might simply fund those contributions from the sale of investments, deductions from salary, salary sacrifice, redundancy sacrifice or from existing savings. A pension commencement lump sum might be an integral aspect of the increased contributions in that one of the reasons for increasing contributions is to receive a larger lump sum. The recycling rule will not apply in these circumstances unless the individual intended to use that pension commencement lump sum as the means of making those increased contributions, whether in a direct or indirect way.

guymo

It would certainly look like recycling to me. HMRC provides examples at
http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM04104980.htm

and detailed guidance at
http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM04104925.htm

which I would think are intended to rule out what the OP proposes. But of course it's worth getting it from the horse's mouth.