Taking pension while working

Christian97

As a way to slowly give up work I have decided to go part time before retiring completely. I am continuing to pay into the company Defined contribution scheme. I have though begun taking my deferred final salary pension (did not need the lump sum so gone for the highest payment) which I intend to save to supplement my final salary scheme when I finish for good, which will mean I can leave the DC untouched for a few years.


It has been suggested to me that I should in fact save the extra cash by way of yet another pension a SIPP as I could get full tax relief on it (I am paying 40% tax)


I am not sure however, as I thought there were restrictions on paying one pension into another, but I have been told this is only relevant to tax free lump sums. Can anybody tell me if this is correct, or point me to any publications that explain the situation...or is this something that only an IFA can help me with.

xylophone

I have though begun taking my deferred final salary pension (did not need the lump sum so gone for the highest payment) which I intend to save to supplement my final salary scheme when I finish for good, which will mean I can leave the DC untouched for a few years.

The above is a little confusing - you had a DB scheme which was deferred (but now in payment) and now have only a DC Scheme to which you currently contribute? You don't have another DB scheme?

Do you mean that you accessed your deferred pension (presumably with actuarial reduction) even though you intended to save it because you don't need the money? Seems a bit odd.

However, taking a scheme pension does not trigger the MPAA ( if that was a matter of concern). It appears that you could use your pension income to increase your DC pension contributions ( occupational and/ or SIPP) subject to normal rules.

http://www.thisismoney.co.uk/money/pensions/article-4147658/How-pension-recycling-rules-work-Steve-Webb-replies.html

https://www.taxation.co.uk/Articles/2017/05/23/336442/annual-and-lifetime-pension-allowances

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Christian97

Thank you very much, sorry if my post was confusing, but it looks like you understood my query.


It appears I can start a separate SIPP and take advantage of the tax benefits... good news


Much appreciated

atush

yes, up to your entire earned income net, less your current contribution to your pension.

jamesd

As the others have written, no problem to do what you want. You can pay in gross up to your gross pay and get tax relief on it all, within the £40k annual allowance. You can go over that using unused unnual allowance from the past three years. The amount you and your employer are paying in counts towards the annual allowance. Nothing dire happens if you go over, you just tell the pension firm and they refund the excess to you and the tax relief to HMRC. Just routine.

You can take out the 25% tax free lump sum whenever you like and continue paying in, at normal places like Hargreaves Lansdown. Every six months, each year or whatever takes your fancy.

If you take any of the taxable money from this type of pension your annual allowance will be cut to £10k, expected to reduce to £4k sometime, and carry forward will be banned. I explain the small pot rule workaround and the tax free lump sum recycling limits here. You can recycle tax free lump sums, just has to be within the limits.