Drawing on tax free lump sum so you can pay more into pension

swindiff

Something that just popped into my head which I am guessing probably isn't allowed but thought I would ask anyway.

I have a hybrid pension with USS, part DB and part DC. One of the great things about this pension is that the TFLS can be taken on the value of the entire pension.

So for example if you had accrued a DB pension worth £15k with a £45k lump sum (this is linked to the DB pension as 3X annual pension), plus you had saved £100k into the DC pot, the overall pension valuation would be £445k. 25% of that can be taken as a TFLS so £111.25k

TFLS from the DC fund can be taken at 55 before retirement I believe so £25k, but could the TFLS of the whole pension be taken at that point? Could you then live off the TFLS for as long as it would last and salary sacrifice down to minimum wage into your pension. I am assuming no but like I said worth asking.

Another option is flexible retirement at 55, if you reduce your hours by 20%, you can take upto 80% of your pension whilst still contributing to it. Would this allow a greater salary sacrifice into the DC pension scheme? Would there be any advantage to this barring the fact that you have a 3 day weekend

drumtochty

You are in your employers pension scheme.


Hint, the employer has the details of that scheme as have you!




I would not go on to a forum that does not have the exact details of my employers pension fund to ask a detailed question on that fund operation.


I would ask my employer or read my fund documentation!!!!!

Marcon

swindiff wrote: »

TFLS from the DC fund can be taken at 55 before retirement I believe so £25k, but could the TFLS of the whole pension be taken at that point? Could you then live off the TFLS for as long as it would last and salary sacrifice down to minimum wage into your pension. I am assuming no but like I said worth asking.

It certainly is worth asking - but ask your employer/scheme, rather than relying on a forum where nobody has your details (or full details of what your employer - as opposed to the scheme - allows you to do in terms of salary sacrifice).

zagfles

There are recycling rules which prevent people taking a TFLS and using it to increase their pension contributions. Loads of articles explaining it - google "hmrc recycling rules"

swindiff

I wouldn't be recycling the TFLS though I would be living off it and my employer would be increasing their contribution to my pension as it's Salary Sacrifice.

swindiff

This is all theoretical I am still only 49. Just throwing it out there as an idea for discussion out of interest.

zagfles

swindiff wrote: »

I wouldn't be recycling the TFLS though I would be living off it and my employer would be increasing their contribution to my pension as it's Salary Sacrifice.

Irrelavent. Read the rules, and the articles you get from my suggested google.

Such as the PTM here: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810
"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.....the additional contributions are made by the individual or by someone else, such as an employer"

bluenose1

Not 100% certain but I have never seen any mention in USS of taking your DB pot before you retire, only your DC pot.
With regards to the flexible retirement I cant think of any additional financial benefits as it would be actuarial reduced, however if you want to reduce your hours then it would be a good way of doing it, without a big drop in income. My concern in doing that I would be doing the same work in less hours.
Not sure how closely HMRC monitor the recycling. Sure I read on here that it is geared for big tax recycling by companies etc and no instances of them intervening on individuals. Though I suppose you wouldn't want to take risk of being first.
I am paying the max into my DC pot and now on minimum wage. Hoping to get the majority of my DC pot out without paying tax if I go at 55. Intend to live off that and potentially start drawing on my DB pot at about 60.

zagubov

bluenose1 wrote: »

Not 100% certain but I have never seen any mention in USS of taking your DB pot before you retire, only your DC pot.
With regards to the flexible retirement I cant think of any additional financial benefits as it would be actuarial reduced, however if you want to reduce your hours then it would be a good way of doing it, without a big drop in income. My concern in doing that I would be doing the same work in less hours.
Not sure how closely HMRC monitor the recycling. Sure I read on here that it is geared for big tax recycling by companies etc and no instances of them intervening on individuals. Though I suppose you wouldn't want to take risk of being first.
I am paying the max into my DC pot and now on minimum wage. Hoping to get the majority of my DC pot out without paying tax if I go at 55. Intend to live off that and potentially start drawing on my DB pot at about 60.

Not an expert in this, but IIRC, if the HMRC did spot the recycling the penalties seemed pretty savage. I seem to remember figures like 40% penalties on the source of funds for the recycling. Do investigate this.

And another thing, you are right to suspect that unless you take a big reduction in working hours and maybe a drop in responsibilities, you may well find you're squeezing the same job into fewer hours with less cost to your employers!