Forum Home» Pensions, Annuities & Retirement Planning

Take 25% and then increase contributions.

New Post Advanced Search

Take 25% and then increase contributions.

16 replies 1.9K views
pensionpawnpensionpawn Forumite
237 posts
100 Posts Second Anniversary Name Dropper
✭✭
So from what I've read on this forum and through other pension advice services I believe that taking just your 25% without going into draw down does not trigger a drop in your annual allowance from £40k to £3k6? If that is true and one continues to work I have not read anything that suggests that after using part of the 25% to repay debt subsequently increasing your pension contributions by the previous amount of regular debt repayment contravenes any rules / regulations. Indeed if personal finances permit you could contribute up to the £40k limit until you start draw down. Am I correct in my understanding and if so has anyone done something similar? Thanks in advance.
«1

Replies

  • MallyGirlMallyGirl Forumite, Board Guide
    5K posts
    Seventh Anniversary 1,000 Posts Name Dropper Intrepid Forum Explorer
    ✭✭✭✭
    I'm a Board Guide on the Debt-free Wannabe, Loans & Credit Cards boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Board guides are not moderators and don't read every post. If you spot an inappropriate or illegal post then please report it to [email protected]
    Any views are mine and not the official line of MoneySavingExpert.com.
  • MndMnd Forumite
    1.7K posts
    1,000 Posts Third Anniversary Name Dropper
    ✭✭✭
    How much are you thinking of taking
    No.79 save £12k in 2020. Total end May £11610
    Annual target £24000
  • pensionpawnpensionpawn Forumite
    237 posts
    100 Posts Second Anniversary Name Dropper
    ✭✭
    Mnd wrote: »
    How much are you thinking of taking

    Around £20k.
  • edited 6 March 2019 at 12:34AM
    pensionpawnpensionpawn Forumite
    237 posts
    100 Posts Second Anniversary Name Dropper
    ✭✭
    edited 6 March 2019 at 12:34AM
    MallyGirl wrote: »

    Thanks for the link. So all six rules must be met. However if you take no more than £7k5 as a TFLS all is well. If you take more than £7k5, say for example £20k, then as long as additional contributions (compared to the existing level of contributions over period t) does not exceed 30% (£6k) then all is well.

    Does that sound right?
  • drumtochtydrumtochty Forumite
    365 posts
    Sixth Anniversary 100 Posts
    ✭✭
    You think it is a good idea to let's say put £5,000 from your tax free sum back in to the pension.


    This with tax relief will increse the value to £6250 and then pay tax on £4,700, on the way out.


    Therefore tax free £1560 and taxable 80% of £4,700 which is £1,560 plus £3,760 equates to £5,320 and have the possibility of explaining why you have not recyled you pension. I am assuming you will pay BR tax in retirement.



    I think there are better things to do than that.
  • edited 6 March 2019 at 12:35AM
    pensionpawnpensionpawn Forumite
    237 posts
    100 Posts Second Anniversary Name Dropper
    ✭✭
    edited 6 March 2019 at 12:35AM
    drumtochty wrote: »
    You think it is a good idea to let's say put £5,000 from your tax free sum back in to the pension.


    This with tax relief will increse the value to £6250 and then pay tax on £4,700, on the way out.


    Therefore tax free £1560 and taxable 80% of £4,700 which is £1,560 plus £3,760 equates to £5,320 and have the possibility of explaining why you have not recyled you pension. I am assuming you will pay BR tax in retirement.



    I think there are better things to do than that.

    However £7k (below guidelines) turns into £8750 which if you are going to cap draw down to your PA means no tax paid. Only trying to fly the envelope of the rules, not bend or break them.
  • AlbermarleAlbermarle Forumite
    4K posts
    1,000 Posts Second Anniversary Name Dropper
    ✭✭✭✭
    There have been quite a few threads on this recycling subject and some different interpretations of the same rules, depending on which website you look at.
    Also it seems that almost no-one ( maybe no one at all) has ever been actually caught/punished/penalised since the rules came into place .
    There is a moral argument against it but I do not think that really applies in this case /with these sums .
  • pensionpawnpensionpawn Forumite
    237 posts
    100 Posts Second Anniversary Name Dropper
    ✭✭
    Albermarle wrote: »
    There have been quite a few threads on this recycling subject and some different interpretations of the same rules, depending on which website you look at.
    Also it seems that almost no-one ( maybe no one at all) has ever been actually caught/punished/penalised since the rules came into place .
    There is a moral argument against it but I do not think that really applies in this case /with these sums .

    I think that given current pension rules allow you to recycle £2880 from 55 to 75 (gaining £14400 in tax rebate along the way), as you suggest, the amount we are discussing here is trivial in comparison, and much less of a moral issue. The TFLS is, after all, being used to repay debt in the first instance, which then releases income to be invested into a pension. Not quite as blatant as taking the money out of your pot and immediately putting it back in.

    Just asking so that I know that what is permissible and what isn't. As to the reason why, the remainder of the TFLF can be keep the family finances running for 5 months whilst dumping the majority of income into the pension. Boosts the pot and delays the start of draw down.
  • pensionpawnpensionpawn Forumite
    237 posts
    100 Posts Second Anniversary Name Dropper
    ✭✭
    Just Googling pension recycling came up with this link which confirms that TFLSs below £7500 do not trigger a recycling event. Thanks for the feedback everyone.
  • MndMnd Forumite
    1.7K posts
    1,000 Posts Third Anniversary Name Dropper
    ✭✭✭
    That's what we do with myvwifes pension, just go careful, I think thatsca calendar year you have to wait, you can't do it now and then within 12 months
    No.79 save £12k in 2020. Total end May £11610
    Annual target £24000
Sign In or Register to comment.

Quick links

Essential Money | Who & Where are you? | Work & Benefits | Household and travel | Shopping & Freebies | About MSE | The MoneySavers Arms | Covid-19 & Coronavirus Support