Paying NHS Pension lump sum into SIPP

SacredStephan

My wife is in the 1995 section of the NHS pension scheme.

She is in the "special classes" and is intending to "retire and return" next April, shortly after her 55th birthday.

On retirement she will be entitled to a pension of about £20000 and a PCLS of about £60000.

I don't think she has the option to reduce the lump sum.

She will probably be returning to work after a short break, maybe part-time in the same job.

She has a SIPP and contributes as needed to take herself out of 40% tax.

In 2018/19 the SIPP contribution was £6000 gross.

Next April, if she was to put the lump sum into her SIPP, subject to the annual limit, maybe over several tax years, would this trigger the recycling tests?

Or, as the lump sum is paid as scheduled under the rules of the NHS DB scheme without any action on her part, does that rule out "pre-planning"?

HappyHarry

SacredStephan wrote: »

My wife is in the 1995 section of the NHS pension scheme.

She is in the "special classes" and is intending to "retire and return" next April, shortly after her 55th birthday.

On retirement she will be entitled to a pension of about £20000 and a PCLS of about £60000.

I don't think she has the option to reduce the lump sum.

She will probably be returning to work after a short break, maybe part-time in the same job.

She has a SIPP and contributes as needed to take herself out of 40% tax.

In 2018/19 the SIPP contribution was £6000 gross.

Next April, if she was to put the lump sum into her SIPP, subject to the annual limit, maybe over several tax years, would this trigger the recycling tests?

Or, as the lump sum is paid as scheduled under the rules of the NHS DB scheme without any action on her part, does that rule out "pre-planning"?

This is recycling.

Q1. Is this pre-planned?
Yes - she's planning to do it now, before the tax-free lump sum is available.

Q2. Is the lump sum taken over [STRIKE]£12,500?[/STRIKE] £7,500?
Yes it is.

Q3. Will there be a significant increase in pension contributions due to tax-free cash being taken?
Yes, there will be.

It looks like your wife will fail on all three key tests.

https://www.aegon.co.uk/support/faq/pension-technical/tax-free-cash-recycling.html

crv1963

HappyHarry wrote: »

This is recycling.

Q1. Is this pre-planned?
Yes - she's planning to do it now, before the tax-free lump sum is available.

Q2. Is the lump sum taken over £12,500?
Yes it is.

Q3. Will there be a significant increase in pension contributions due to tax-free cash being taken?
Yes, there will be.

It looks like your wife will fail on all three key tests.

https://www.aegon.co.uk/support/faq/pension-technical/tax-free-cash-recycling.html

However although no expert on this topic, I think there may be ways round this.

She could save her income from her earnings in the part time job into a SIPP, and therefore supplement her pension by using the lump sum?

I may be way off the mark but I thought you had to meet each of the tests to be accused of recycling?

HappyHarry

crv1963 wrote: »

However although no expert on this topic, I think there may be ways round this.

She could save her income from her earnings in the part time job into a SIPP, and therefore supplement her pension by using the lump sum?

I may be way off the mark but I thought you had to meet each of the tests to be accused of recycling?

No, HMRC would still count that as recycling, as the response to all three above are still "Yes".


See examples 3 and 4 from the tax manual here: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133850


n.b. I meant to say £7,500 in above post. Corrected now.

crv1963

If the lump sum was invested elsewhere, for instance ISAs, so in effect not spent or if spent used to pay down mortgage, credit cards or major purchases, could the individual not then open a SIPP and pay 80% of their earnings into this, whilst using the pension to live off of?

HappyHarry

crv1963 wrote: »

If the lump sum was invested elsewhere, for instance ISAs, so in effect not spent or if spent used to pay down mortgage, credit cards or major purchases, could the individual not then open a SIPP and pay 80% of their earnings into this, whilst using the pension to live off of?

No, this is still recycling.

The pension contributions have been increased due to the tax-free lump sum received, and it is pre-planned. It matters not whether it's hidden in the way you describe, HMRC would view it as recycling.

crv1963

HappyHarry wrote: »

No, this is still recycling.

The pension contributions have been increased due to the tax-free lump sum received, and it is pre-planned. It matters not whether it's hidden in the way you describe, HMRC would view it as recycling.

Looks like my plans need to be re-thought then!

OldBeanz

1. Can you continue the contributions?
2. I am sure there was a discussion at one stage that no one was aware of anyone being penalised. Does anyone know how many have been caught?
I would think the recycling malarkey is more relevant to DC pensions where you can choose how much you can withdraw in the same way taking a DB does not trigger any restriction on future contributions.

Dazed_and_confused

In 2018/19 the SIPP contribution was £6000 gross.

Next April, if she was to put the lump sum into her SIPP, subject to the annual limit, maybe over several tax years, would this trigger the recycling tests?

What happened to this part of the plan?

Albermarle

.

I am sure there was a discussion at one stage that no one was aware of anyone being penalised. Does anyone know how many have been caught?

I think one of the other threads I read on this topic, said nobody had ever been prosecuted for recycling.
It has also been discussed that giving the PCLS to a partner, to then invest in a pension is probably not technically recycling ( assuming hey have the taxable earnings to support it)
On the other side there is a moral case against it generally , as many pensions have benefited greatly already from tax advantages so to try and double up on that is not cricket really,.