Is this pension recycling?

reheat

I would prefer not to retire at 65 next year, but instead continue working another year, and still pay into my current employer's pension scheme. I'm I'm not keen on deferring my state pension for that year, because the break-even period for making up that lost year's pension payments is a long time. Similarly for a DB scheme from an earlier employer.

My plan was to instead draw both these pensions, and pay the money from them into my company pension each month, but not sure now if this comes under the heading of pension recycling. I thought that was only if you recycled pension lump sums, or draw down, but someone has given me reason to doubt.

Any thoughts on this please?

ermine

HMRC are talking about the tax-free cash. You are going to get taxed good and proper on those pensions, so they aren't tax-free cash. Read more from HMRC here. Your income has gone up because you are drawing those pensions. Now if you pay in more because you have a PCLS as well, then you need to read more carefully.

You must really love working to want to do it > 65

reheat

Just need to finish paying the mortgage off, so don't have to fritter any lump sum on it.

reheat

It would be the case that I would be increasing my normal monthly payments into my current employer pension scheme, by an amount similar to the pension payments I start receiving at 65. My reason for doing this would be to avoid paying the extra tax on the pension payments, and not needing those additional payments whilst still working. Instead of paying tax on the pension payments, it would instead go into my current pension. Then when I do retire I have a bit more in the pension pot.

Are you saying that is that something HMRC are OK with ermine?

Linton

The question of pension recycling only needs to be considered if you are taking lump sums from a DC pension pot so in your circumstances it is not an issue.

Most of the tax you gain now will be recouped when you draw your current employers pension.

crv1963

Linton wrote: »

The question of pension recycling only needs to be considered if you are taking lump sums from a DC pension pot so in your circumstances it is not an issue.

Sorry if this takes this thread off at a tangent, I'll start a new thread if that is needed.


Does the above quote mean that I can put some of my DB (NHS) pension lump sum into a SIPP without breaking the rules? I will be taking my pension next year at scheme retirement age 55 and then working on for a few (5 probably) years to bridge the gap from 60 to 67 when SP starts.


I planned to transfer an AVC to start my SIPP but would look to be putting 12% of TFLS into my SIPP and 20% into my wifes SIPP- (which will be started by transferring her SERPS opt out pot) if that is permissible (we would be within our earnings range and it would be under 40k total aa each).

ermine

crv1963 wrote: »

The question of pension recycling only needs to be considered if you are taking lump sums from a DC pension pot so in your circumstances it is not an issue.

Sorry if this takes this thread off at a tangent, I'll start a new thread if that is needed.


Does the above quote mean that I can put some of my DB (NHS) pension lump sum into a SIPP without breaking the rules? I will be taking my pension next year at scheme retirement age 55 and then working on for a few (5 probably) years to bridge the gap from 60 to 67 when SP starts.


I planned to transfer an AVC to start my SIPP but would look to be putting 12% of TFLS into my SIPP and 20% into my wifes SIPP- (which will be started by transferring her SERPS opt out pot) if that is permissible (we would be within our earnings range and it would be under 40k total aa each).

If I were HMRC, I personally would do you for that, on the following grounds

The recycling rule applies when all of the following conditions are met:

• the individual receives a pension commencement lump sum
  Yep, check
• because of the lump sum, the amount of contributions paid into a registered pension scheme in respect of the individual is significantly greater than it otherwise would be. Further guidance about what is a significant increase in contributions is at PTM133830
  
  Yep, check, assuming you increase by > a third
  
  
• the additional contributions are made by the individual or by someone else, such as an employer
  Yep, check. Also in your wife's case
  
• the recycling was pre-planned. Further guidance about determining whether the recycling was pre-planned is at PTM133820
  
  Yep, check - as stated in your post
  
  
• the amount of the pension commencement lump sum, taken together with any other such lump sums taken in the previous 12 month period, exceeds
  • £7,500 for events on or after 6 April 2015, or
  • 1% of the standard lifetime allowance for events before 6 April 2015
    Yep, check assuming this is worth doing
    
  and
• the cumulative amount of the additional contributions exceeds 30% of the pension commencement lump sum. Further guidance about the cumulative basis of the recycling rule is at PTM133830
  
  Yep, check
  
  
  
  

But to be honest since I don't work for HMRC you'll probably get away with it. This rule was for really big cheeses who are advised to do this by their accountants. The fact you consider asking this on here probably means you're not their target, even on a technicality you fall foul. Obviously only you know the specific details.

The OP was using the increase in his taxable income due to getting his pensions. You would probably be OK if you limited your annual contribs to the gross amount of the pension you are receiving, after all then it ain't your PCLS, guv.

If the OP paid down his mortgage with his PCLS that wouldn't be recycling either - the PCLS is a great way to pay down your mortgage from gross salary. Money being fungible it doesn't matter, but paying the mortgage with the PCLS makes a much better story if HMRC start sniffing I would guess.

Anybody thinking of pulling this sort of stunt from a DC pension into another would should be wary fo their MPAA falling to 4k p.a. as soon as they draw a penny more than the PCLS

Jamesd has written at length on this FYI

Linton

It seems that the HMRC rules and particularly the recent sanctions are really focussed on DC pensions where you have the option of taking the PCLS separately from the main part of the pension. With a DB pension you automatically get the tax free lump sum when you start taking your main pension so pre-planning would be rather difficult to show as you wouldnt have taken the lump sum at that particular time for the purpose of recycling.

Whether this is morally acceptable is another discussion.

crv1963

Thanks for the replies, but my thoughts are now that I won't put any of the TFLS into a SIPP only earnings and the TFLS will go towards paying down the mortgage and ISAs. I don't want to be the test case that falls fowl of the rules, knowing my luck!!!!

sebthered

'I'm I'm not keen on deferring my state pension for that year, because the break-even period for making up that lost year's pension payments is a long time'

If you don't need it immediately, and deferring means you avoid income tax, then deferring is a good investment IMHO - the break even consideration ought not to be much of a consideration....