Flexible drawdown while still working to maximise LTA

jamesd

madeinireland wrote: »

The increases in DB scheme amounts were due to normal pay rises and bonuses and additional AVC scheme contributions from salary.

OK. First thing you might do is remove the parts liked to pay and pay rises and consider only the AVC, bonus and SIPP - all of the purely discretionary things.

madeinireland wrote: »

I stopped them for a year and got a very small rise hence the big drop for one year. I then started to contribute big time to my SIPP.

And unfortunately that big increase was within the five year window, so it hurts.

madeinireland wrote: »

So I guess I have a couple of options if I understand this correctly...

1. Only take 7500 per year.
2. Wait two years and then I will be clear to take it all. If this is not correct then when can I take my lump sum as I thought this would all be easy ?

Yes, of those two I'd go for the £7500 of those two then the rest after two years. But what I'd really do is go for the better third option that I think you have.

HMRC has to find some evidence of lump sum recycling. How did you pay for the higher contributions? If it was out of pay and not using borrowing or savings, how can they show that recycling happened, when it didn't? So if it was out of income, just take all the tax free lump sum you want, knowing that you can prove it wasn't recycling anything, just out of normal income.

My guess is that the increase just came out of your income and no recycling was involved, so you probably don't really need to worry about it at all.

jamesd

PKY wrote: »

Because I have made a large pension contribution 2 years ago using the carry forward rule are my plans to go into FAD this year doomed?

No, it depends on how you funded the contribution among other things. If it was just out of ordinary income there's nothing to worry about other than explaining this to HMRC if they ask.

If you borrowed or used savings then plan to refill the same savings or repay borrowing with the lump sum more care is needed. The solution in that case could be more borrowing so that you draw £7,500 for two years plus borrow to meet your needs for those years, then repay the borrowing after the five year window has expired.

PKY wrote: »

How would I fare using the argument that I am going into FAD because of the recent announcement of a reduction in LTA. Which is true!

It makes perfect sense and hopefully HMRC will recognise that. If the increase is out of normal income you really should have nothing to worry about, because HMRC has to show that the higher contributions were at least partly funded directly or indirectly from the lump sum, not normal income.

madeinireland_2

Jamesd.

Thank you once again.

The contributions I made came from my joint current account which is fed from my salary. It's actually an offset account so I keep money in there to offset Mortgage. Also during the year my wife and I both sold shares to increase the amounts in that account so the contributions could be made. They were also part of my overall plan to reduce my income for the last couple of years via pension contributions so that my kids would receive a bigger bursury from their Universities.

I have significant share holdings so I genuinely really didn't need the TFLS to manage to make bigger pension contributions

I presume the above means it would not be classified as coming directly from income - although some of my total pension contributions did come from salary sacrifice of both pay and bonus.

Back to options 1 or 2 I presume ?

Thanks...

kangoora

I've just increased my pension payments by 5x (up to the max annual allowance) and expect to retire in about 3 years time. At the same time, for family reasons, the mortgage I was going to pay off to fund these increased payments I now need to renew. I expect HMRC will look suspiciously at this sequence of events.

I expect to have a pension pot of circa £300k in 3 years (subject to markets naturally). Would it be 'safest' to just crystalise £30k of my pension pot for each of the two years following retirement and taking a 25% TFLS of £7.5k each time. I shouldn't have any real 'need' to get the full TFLS during this time. I assume if I do get a need for more cash I could draw down some of the crystalised £30k pot as taxable income.

In year 3 following retirement I can then take any remaining 25% TFLS from the remaining non-crystallised pension pot?

Seems a bit of a faff but also seems this way I can avoid any pain with HMRC, last thing I want when retired.......

jamesd

madeinireland wrote: »

The contributions I made came from my joint current account which is fed from my salary. It's actually an offset account so I keep money in there to offset Mortgage. Also during the year my wife and I both sold shares to increase the amounts in that account so the contributions could be made. They were also part of my overall plan to reduce my income for the last couple of years via pension contributions so that my kids would receive a bigger bursury from their Universities.

OK, so the kids and bursaries is one part of the reason. To deal with the shares you should ensure that you do not buy the same or essentially the same shares with the tax free lump sum until the five year window has ended. I think you'll be fine if you do that.

jamesd

kangoora wrote: »

I've just increased my pension payments by 5x (up to the max annual allowance) and expect to retire in about 3 years time.

The timing matters. Is it two tax years before the tax year in which you take the lump sum? Three? Four? The years before the start of the five year window establish the expected contributions and an increase in the first year of the five year window is worst.

Say it's three tax years. So this year is PCLS-3, next two are PCLS-2 and -1 then there's the year of the PCLS. Which means that the five times higher contribution this year is part of your expected contribution calculation. Take the PCLS one year sooner and it's the first of the increase years.

kangoora wrote: »

I expect to have a pension pot of circa £300k in 3 years

Using one of the two 30% rules, the cumulative increase is OK if it's no more than 30% of the PCLS. So if you were to take the PCLS from the whole £300k that would be £75,000 PCLS and 30% of that would be £22,500. So that much of a cumulative increase would be OK.

kangoora wrote: »

Would it be 'safest' to just crystalise £30k of my pension pot for each of the two years following retirement and taking a 25% TFLS of £7.5k each time.

Probably but it does depend on timing and what the expected amount calculation says was expected.

How are you paying for the increased contributions? It it's just out of income with no new borrowing or drawing from savings that you replace with the lump sum you should be fine.

kangoora wrote: »

I shouldn't have any real 'need' to get the full TFLS during this time. I assume if I do get a need for more cash I could draw down some of the crystalised £30k pot as taxable income.

Or you could borrow money so long as it wasn't used to fund pension contributions.

kangoora wrote: »

In year 3 following retirement I can then take any remaining 25% TFLS from the remaining non-crystallised pension pot?

Yes, probably. I assume that by then your pension contributions will have dropped to £3600 a year so you can prove a decrease in contributions, not an increase.

kangoora

Unfortunately I've hit the worst year - it will be year 1 of the 5 year tax window when I increase my contributions. This has only been made possible by getting circa £100k Sharesave last tax year combined with an £35k endowment maturing this year also. We've been cashing the Saveshare in to the CGT limit and currently have cleared all debts and got a new(ish) car. This year was supposed to be paying off the mortgage.

Unfortunately, due to a death in the family I need to re-mortgage to buy out my BIL's share of a house instead of paying my own mortgage off. Without this I'd have had no mortgage and could have pointed out an additional £1250 net 'free cash' monthly (mostly at 40% tax rate) to add to my pension with no mortgage and zero debts.

I realise I could probably plead a windfall exception but the timing of the increase in pension payments plus having to re-mortgage at just the wrong time just makes me worried if HMRC decide to pick on me. I think I'll just take the reduced TFLS on a yearly basis for a couple of years until I leave the TFLS tax window to be on the safe side....

jamesd

The Sharesave and endowment are excellent: it explains the source of the funds and should mean that you're safe.