Can I pay maturing Endowment into Pension?

Shylock

I'm shortly expecting a five figure sum from an Endowment Policy that was originally set up to repay a mortgage but is no longer needed for that purpose. Can I pay it into one of my Pension Pots and get some Tax refunded, bearing in mind the Endowment Policy Monthly Payments were made from Taxed income?

AnotherJoe

Wrong way to look at it. Whose to say when you pay say £10k into your pension, that £10k wasn't from your earnings, and you used the endowment money to buy your groceries and pay the mortgage? No one marks each fiver with a marker pen so they can find out where the money came from.

All that matters is, there is a limit how much you can pay in, which is based on your earnings or £40k whichever is lower (unless you are also taking from a pension when it gets complex)

Plus you can carry forward from last three years unused pension contributions. So as long as you haven't been paying in the maximum, and you have enough earnings to cover the amount you'll pay in, and you aren't already taking money out of your pension, you are fine.

Shylock

AnotherJoe wrote: »

Wrong way to look at it. Whose to say when you pay say £10k into your pension, that £10k wasn't from your earnings, and you used the endowment money to buy your groceries and pay the mortgage? No one marks each fiver with a marker pen so they can find out where the money came from.

Interesting point that, about "no one marking each fiver with a marker pen". I recently took a Tax Free pay-out from the Pension Protection Fund. The document I had to sign said I mustn't re-invest it in another pension pot. How can that money be "ring-fenced" in such a way? The combined total of both the Endowment & PPF payout would not exceed the 3 year annual allowance limit when combined with my regular pension contributions.

Malthusian

Shylock wrote: »

Interesting point that, about "no one marking each fiver with a marker pen". I recently took a Tax Free pay-out from the Pension Protection Fund. The document I had to sign said I mustn't re-invest it in another pension pot. How can that money be "ring-fenced" in such a way?

HMRC's rules say that if

a) you received more than £7,500 in tax free cash
b) you increased your contributions by more than 30%
c) your additional contributions were more than 30% of the tax-free cash
d) you planned to use the tax free cash to increase your pension contributions all along

then you've committed tax-free cash recycling. It's not so much circling the tax free cash with a marker pen, as saying that you increased your contributions by a dramatically large amount, and you received a dramatically large amount in tax free cash, so join the dots, Sherlock.

The combined total of both the Endowment & PPF payout would not exceed the 3 year annual allowance limit when combined with my regular pension contributions.

Do you have sufficient earned income for the total of the endowment & PPF to be tax relievable when paid into a pension plan?

Are you a member of any defined benefit schemes and if so have there been any accruals in the past 4 tax years which would count towards the annual allowance?

Were you a member of a pension scheme in the previous three tax years?

You say you took a tax free lump sum from the Pension Protection Fund - what type of pension payment was this as depending on the type of pension payment it may have triggered the Money Purchase Annual Allowance?

AnotherJoe wrote:

All that matters is, there is a limit how much you can pay in, which is based on your earnings or £40k whichever is lower (unless you are also taking from a pension when it gets complex)

Because people frequently get this wrong I think it needs to be said that this is a bit of an oversimplification. There are two different limits, one of which is the £40k "annual allowance" and the other being your earned income. The former can be carried forward three tax years if unusued (sometimes), the latter cannot. And contributions paid by your employer are not affected by the latter limit but are by the former. So it is important not to confuse the two.

Shylock

Malthusian wrote: »

HMRC's rules say that if

a) you received more than £7,500 in tax free cash
b) you increased your contributions by more than 30%
c) your additional contributions were more than 30% of the tax-free cash
d) you planned to use the tax free cash to increase your pension contributions all along

then you've committed tax-free cash recycling. It's not so much circling the tax free cash with a marker pen, as saying that you increased your contributions by a dramatically large amount, and you received a dramatically large amount in tax free cash, so join the dots, Sherlock.

Do you have sufficient earned income for the total of the endowment & PPF to be tax relievable when paid into a pension plan?

Hoping they will total an amount just over the £40k limit. Gross annual salary is circa £36-38k

Are you a member of any defined benefit schemes and if so have there been any accruals in the past 4 tax years which would count towards the annual allowance?

NO. Defined Contributions.

Were you a member of a pension scheme in the previous three tax years?

YES

You say you took a tax free lump sum from the Pension Protection Fund - what type of pension payment was this as depending on the type of pension payment it may have triggered the Money Purchase Annual Allowance?

This is a good point. I'll have to check that with PPF. At the time, when I turned 55, I asked if their offer (which was referred to as Compensation, not a Pension) would have any impact on my other pensions & they said not. I took a tax free lump sum and a small monthly payment for the rest of my life. It will be annoying, although not disastrous, if it has triggered the reduction in annual allowance.

All in all it looks like it may be easier trickling most of it into a S&S ISA over the next couple of years.

AnotherJoe

Thanks for the clarification to my undoubted simplification Malthusian. So the OP may (depending on what they currently contribute) need to stage their payments over a couple of years or more?