SIPP in Drawdown whilst contributing to another DC scheme ?

0779mike

jamesd wrote: »

Yes, that looks OK.

You have no recycling problem because the DB pension and 30% of its tax free lump sum permit an increase of 8758.20 a year from when that started plus over five years an additional 39k.

The rest also looks fine.

James, Apologies but I don't fully understand this. I will make the £39,490 Additional Personal Contribution in a month or so.

Can I then make further APCs of £8,758.20 per year for 5 years ? (from earned income).

Mike

jamesd

0779mike wrote: »

James, Apologies but I don't fully understand this. I will make the £39,490 Additional Personal Contribution in a month or so.

Can I then make further APCs of £8,758.20 per year for 5 years ? (from earned income).

0779mike wrote: »

I am also in receipt of a DB pension from a previous employer of £8758.20 p.a.

Yes, you can.

There are no restrictions other than pay or annual allowance on recycling pension income. So you're free to increase by £8758.20 p.a. gross because of this pension income. It won't be considered in the lump sum recycling calculations because it's an increase that isn't due to tax free lump sum recycling.

0779mike

How have you calculated £8758.20, please, James ?

jamesd

I didn't calculate it. It's what you told us the DB income is. That amount, whatever it is, is outside the lump sum recycling calculation.

0779mike

Ah, I see. I have been in receipt of that £8,758.20 DB pension for the past 5 years.

So, I can make an AP of £39,490 now, and a further £8,758.20 per annum for 5 years from now ?

This does seem like a loophole to me which is why I am checking so thoroughly. I appreciate your patience.

jamesd

0779mike wrote: »

Let me put some hypothetical figures on this as an example. ... I will receive a taxable income of up to £78k this financial year comprising salary (£58k) and a DB pension that started paying in May this year (£20k).

0779mike wrote: »

Ah, I see. I have been in receipt of that £8,758.20 DB pension for the past 5 years.

So, I can make an AP of £39,490 now, and a further £8,758.20 per annum for 5 years from now ?

This does seem like a loophole to me which is why I am checking so thoroughly. I appreciate your patience.

The difference between starting in May this year and starting five years or even two years ago is huge.

You cannot disregard the DB income when applying the recycling rules because it started too long ago. May and you could have. Even the previous tax year. But not five years ago.

Many who can plan ahead by four or more years and who have plenty of money can ensure compliance with the recycling limits, by increasing their contributions early.

You need to calculate the five year rule effect. Start with 2015-16 to help to establish what your level of expected contributions is.

0779mike

Apologies but I don't understand this 5 year rule. I have been in receipt of the £8,758.20 DB pension for more than 5 years and it has probably gone up by RPI each year.

1) Am I safe to make an APC of £39,490 (<30% of £131,665 PCLS that I received in July ?

2) What APCs could I safely make in future years and please show the calculation ? Can I do this after I have started drawdown ?

Mike

AlanP_2

0779mike wrote: »

2) What APCs could I safely make in future years and please show the calculation ? Can I do this after I have started drawdown ?

Mike

I don't believe you will be able to make contributions in future years above £3600 Gross / £2880 Nett as you won't have any earned income to justify it - you will be retired with all income coming from pensions.

jamesd

0779mike wrote: »

Apologies but I don't understand this 5 year rule. I have been in receipt of the £8,758.20 DB pension for more than 5 years and it has probably gone up by RPI each year.

1) Am I safe to make an APC of £39,490 (<30% of £131,665 PCLS that I received in July ?

Yes, 30% of that is OK, assuming you didn't increase in the last two years by more than inflation.

0779mike

jamesd said:

0779mike wrote: »

I have noticed that no one is responding on this thread now, have I exhausted everyone's patience ?

No, it just means that the people who thought they could usefully reply happened to be doing other things.

0779mike wrote: »

Wait a minute, I already had a PCLS of £133k from a DC scheme in May 2019. So a contribution now of £39k would keep me below the 30% figure and thus I would fail a test, and not be a "recycler".

You're still a recycler, just within the limits.

0779mike wrote: »

...I will receive a taxable income of up to £78k this financial year comprising salary (£58k) and a DB pension that started paying in May this year (£20k).

There aren't any special restrictions on recycling pension income so from just the recycling rules aspect it's fine for you to increase your contributions by 39k + 20k = 59k.

But because only 58k is salary, 58k gross is the maximum you can pay in and get tax relief. You also need enough annual allowance but it seems clear that you have at least 18k of unused allowance in the last three years to carry forward so that doesn't limit you. Which means that 58k gross is likely be optimal.

Is the current DC scheme using salary sacrifice? Is it a relief at source scheme, one where employee contributions have 25% added to them to give the 20% basic rate relief? That affects the details of how you should do things.

No need to ask HMRC - don't. If you do, don't mention the offset mortgage, it wouldn't help because the rules catch borrowing.

The DC scheme into whch I am going to make the APC of £39,490 will add 25% to my payment.  So following on from the comment above, how should I do things ?