Pension recycling

jamesd

caro69 said:

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000.  It is his only pension.  He is 63. It is inflexible and the only way he can use it is by taking his 25 per cent tax free and then an annuity.  Clearly the annuity is going to pay peanuts. 

The amount means that this recycling is OK so no need to worry about that.

It's not certain that the annuity will be peanuts. Older pensions quite often had guaranteed annuity rate that could exceed 10% a year, potentially £2,700 a yea. Or less, no way to  know without checking.

Has he taken a UFPLS payment from this plan? Until April 2020 partial lump sum payments were allowed by Zurich but now they only are if one has already been taken, or if it is an executive pension. It's useful to save income tax if he can do it.

Reading this past discussion may be useful, particularly interesting is dunstonh's "There is a cap of 1% on transfer charges once you hit the decumulation age (55). There are some types of charges that are not included within that though.". More on that subject including a letter from Zurich here. Since 1% is less than £300 and your husband can save a lot of tax by taking it over several tax years thi appears to be good news.

Given that it seems that checking if any guaranteed annuity value is worth having then, if not, transferring is the way to go. Unless that partial UFPLS from Zurich is available to him.

caro69

jamesd said:

caro69 said:

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000.  It is his only pension.  He is 63. It is inflexible and the only way he can use it is by taking his 25 per cent tax free and then an annuity.  Clearly the annuity is going to pay peanuts. 

The amount means that this recycling is OK so no need to worry about that.

It's not certain that the annuity will be peanuts. Older pensions quite often had guaranteed annuity rate that could exceed 10% a year, potentially £2,700 a yea. Or less, no way to  know without checking.

Has he taken a UFPLS payment from this plan? Until April 2020 partial lump sum payments were allowed by Zurich but now they only are if one has already been taken, or if it is an executive pension. It's useful to save income tax if he can do it.

Reading this past discussion may be useful, particularly interesting is dunstonh's "There is a cap of 1% on transfer charges once you hit the decumulation age (55). There are some types of charges that are not included within that though.". More on that subject including a letter from Zurich here. Since 1% is less than £30 and your husband can save a lot of tax by taking it over several tax years thi appears to be good news.

Given that it seems that checking if any guaranteed annuity value is worth having then, if not, transferring is the way to go. Unless that partial UFPLS from Zurich is available to him.

Thanks for replying James.  I will read through the treads above.

There do not appear to be any guarantees at all.  He can take three small lump sum payments, the first 25% of each is tax free.  The thing is we really do not want to take anything out at this stage just keep it invested.  The advisor led us to believe that we basically only had one option and that was to withdraw it all as, a. the charges involved in transferring it were huge (larger than the £1500 tax implication), b. if it goes over £30k then we are stuck with 25% withdrawal and the rest as an annuity.  We do not want an annuity.  I know that Zurich can't offer us a flexible drawdown facility as we enquired in the past.

Clearly, we have to confirm the charges for transferring it ourselves.  The idea of putting as much as possible into my SIPP (which I set up myself with HL), to keep as much as possible invested, came about as I knew my husband would not be able to invest it as he is currently not working.

garmeg

caro69 said:

jamesd said:

caro69 said:

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000.  It is his only pension.  He is 63. It is inflexible and the only way he can use it is by taking his 25 per cent tax free and then an annuity.  Clearly the annuity is going to pay peanuts. 

The amount means that this recycling is OK so no need to worry about that.

It's not certain that the annuity will be peanuts. Older pensions quite often had guaranteed annuity rate that could exceed 10% a year, potentially £2,700 a yea. Or less, no way to  know without checking.

Has he taken a UFPLS payment from this plan? Until April 2020 partial lump sum payments were allowed by Zurich but now they only are if one has already been taken, or if it is an executive pension. It's useful to save income tax if he can do it.

Reading this past discussion may be useful, particularly interesting is dunstonh's "There is a cap of 1% on transfer charges once you hit the decumulation age (55). There are some types of charges that are not included within that though.". More on that subject including a letter from Zurich here. Since 1% is less than £30 and your husband can save a lot of tax by taking it over several tax years thi appears to be good news.

Given that it seems that checking if any guaranteed annuity value is worth having then, if not, transferring is the way to go. Unless that partial UFPLS from Zurich is available to him.

Thanks for replying James.  I will read through the treads above.

There do not appear to be any guarantees at all.  He can take three small lump sum payments, the first 25% of each is tax free.  The thing is we really do not want to take anything out at this stage just keep it invested.  The advisor led us to believe that we basically only had one option and that was to withdraw it all as, a. the charges involved in transferring it were huge (larger than the £1500 tax implication), b. if it goes over £30k then we are stuck with 25% withdrawal and the rest as an annuity.  We do not want an annuity.  I know that Zurich can't offer us a flexible drawdown facility as we enquired in the past.

Clearly, we have to confirm the charges for transferring it ourselves.  The idea of putting as much as possible into my SIPP (which I set up myself with HL), to keep as much as possible invested, came about as I knew my husband would not be able to invest it as he is currently not working.

As you are with Hargreaves Lansdown yourself, why not open a SIPP for your husband with them?

He can transfer into this SIPP and take three small pots of up to £10,000 each from here as and when required?

Hargreaves will create a small pot to do this, from his existing funds, when he wishes to do so.

caro69

garmeg said:

caro69 said:

jamesd said:

caro69 said:

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000.  It is his only pension.  He is 63. It is inflexible and the only way he can use it is by taking his 25 per cent tax free and then an annuity.  Clearly the annuity is going to pay peanuts. 

The amount means that this recycling is OK so no need to worry about that.

It's not certain that the annuity will be peanuts. Older pensions quite often had guaranteed annuity rate that could exceed 10% a year, potentially £2,700 a yea. Or less, no way to  know without checking.

Has he taken a UFPLS payment from this plan? Until April 2020 partial lump sum payments were allowed by Zurich but now they only are if one has already been taken, or if it is an executive pension. It's useful to save income tax if he can do it.

Reading this past discussion may be useful, particularly interesting is dunstonh's "There is a cap of 1% on transfer charges once you hit the decumulation age (55). There are some types of charges that are not included within that though.". More on that subject including a letter from Zurich here. Since 1% is less than £30 and your husband can save a lot of tax by taking it over several tax years thi appears to be good news.

Given that it seems that checking if any guaranteed annuity value is worth having then, if not, transferring is the way to go. Unless that partial UFPLS from Zurich is available to him.

Thanks for replying James.  I will read through the treads above.

There do not appear to be any guarantees at all.  He can take three small lump sum payments, the first 25% of each is tax free.  The thing is we really do not want to take anything out at this stage just keep it invested.  The advisor led us to believe that we basically only had one option and that was to withdraw it all as, a. the charges involved in transferring it were huge (larger than the £1500 tax implication), b. if it goes over £30k then we are stuck with 25% withdrawal and the rest as an annuity.  We do not want an annuity.  I know that Zurich can't offer us a flexible drawdown facility as we enquired in the past.

Clearly, we have to confirm the charges for transferring it ourselves.  The idea of putting as much as possible into my SIPP (which I set up myself with HL), to keep as much as possible invested, came about as I knew my husband would not be able to invest it as he is currently not working.

As you are with Hargreaves Lansdown yourself, why not open a SIPP for your husband with them?

He can transfer into this SIPP and take three small pots of up to £10,000 each from here as and when required?

Hargreaves will create a small pot to do this, from his existing funds, when he wishes to do so.

This would be ideal I think.  However, I just have to confirm with the 'advisor'/Zurich what the charges are for transferring the pension.  She suggested that it would not be cost effective to do so to the point that it would be cheaper to cash in the whole pension and take the tax hit.  

garmeg

caro69 said:

garmeg said:

caro69 said:

jamesd said:

caro69 said:

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000.  It is his only pension.  He is 63. It is inflexible and the only way he can use it is by taking his 25 per cent tax free and then an annuity.  Clearly the annuity is going to pay peanuts. 

The amount means that this recycling is OK so no need to worry about that.

It's not certain that the annuity will be peanuts. Older pensions quite often had guaranteed annuity rate that could exceed 10% a year, potentially £2,700 a yea. Or less, no way to  know without checking.

Has he taken a UFPLS payment from this plan? Until April 2020 partial lump sum payments were allowed by Zurich but now they only are if one has already been taken, or if it is an executive pension. It's useful to save income tax if he can do it.

Reading this past discussion may be useful, particularly interesting is dunstonh's "There is a cap of 1% on transfer charges once you hit the decumulation age (55). There are some types of charges that are not included within that though.". More on that subject including a letter from Zurich here. Since 1% is less than £30 and your husband can save a lot of tax by taking it over several tax years thi appears to be good news.

Given that it seems that checking if any guaranteed annuity value is worth having then, if not, transferring is the way to go. Unless that partial UFPLS from Zurich is available to him.

Thanks for replying James.  I will read through the treads above.

There do not appear to be any guarantees at all.  He can take three small lump sum payments, the first 25% of each is tax free.  The thing is we really do not want to take anything out at this stage just keep it invested.  The advisor led us to believe that we basically only had one option and that was to withdraw it all as, a. the charges involved in transferring it were huge (larger than the £1500 tax implication), b. if it goes over £30k then we are stuck with 25% withdrawal and the rest as an annuity.  We do not want an annuity.  I know that Zurich can't offer us a flexible drawdown facility as we enquired in the past.

Clearly, we have to confirm the charges for transferring it ourselves.  The idea of putting as much as possible into my SIPP (which I set up myself with HL), to keep as much as possible invested, came about as I knew my husband would not be able to invest it as he is currently not working.

As you are with Hargreaves Lansdown yourself, why not open a SIPP for your husband with them?

He can transfer into this SIPP and take three small pots of up to £10,000 each from here as and when required?

Hargreaves will create a small pot to do this, from his existing funds, when he wishes to do so.

This would be ideal I think.  However, I just have to confirm with the 'advisor'/Zurich what the charges are for transferring the pension.  She suggested that it would not be cost effective to do so to the point that it would be cheaper to cash in the whole pension and take the tax hit.  

If it is a straightforward unit linked plan with no guaranteed annuity rate any transfer charge is capped at 1% or £270 in your example.

You can get Hargreaves to do the work for you.

caro69

garmeg said:

caro69 said:

garmeg said:

caro69 said:

jamesd said:

caro69 said:

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000.  It is his only pension.  He is 63. It is inflexible and the only way he can use it is by taking his 25 per cent tax free and then an annuity.  Clearly the annuity is going to pay peanuts. 

The amount means that this recycling is OK so no need to worry about that.

It's not certain that the annuity will be peanuts. Older pensions quite often had guaranteed annuity rate that could exceed 10% a year, potentially £2,700 a yea. Or less, no way to  know without checking.

Has he taken a UFPLS payment from this plan? Until April 2020 partial lump sum payments were allowed by Zurich but now they only are if one has already been taken, or if it is an executive pension. It's useful to save income tax if he can do it.

Reading this past discussion may be useful, particularly interesting is dunstonh's "There is a cap of 1% on transfer charges once you hit the decumulation age (55). There are some types of charges that are not included within that though.". More on that subject including a letter from Zurich here. Since 1% is less than £30 and your husband can save a lot of tax by taking it over several tax years thi appears to be good news.

Given that it seems that checking if any guaranteed annuity value is worth having then, if not, transferring is the way to go. Unless that partial UFPLS from Zurich is available to him.

Thanks for replying James.  I will read through the treads above.

There do not appear to be any guarantees at all.  He can take three small lump sum payments, the first 25% of each is tax free.  The thing is we really do not want to take anything out at this stage just keep it invested.  The advisor led us to believe that we basically only had one option and that was to withdraw it all as, a. the charges involved in transferring it were huge (larger than the £1500 tax implication), b. if it goes over £30k then we are stuck with 25% withdrawal and the rest as an annuity.  We do not want an annuity.  I know that Zurich can't offer us a flexible drawdown facility as we enquired in the past.

Clearly, we have to confirm the charges for transferring it ourselves.  The idea of putting as much as possible into my SIPP (which I set up myself with HL), to keep as much as possible invested, came about as I knew my husband would not be able to invest it as he is currently not working.

As you are with Hargreaves Lansdown yourself, why not open a SIPP for your husband with them?

He can transfer into this SIPP and take three small pots of up to £10,000 each from here as and when required?

Hargreaves will create a small pot to do this, from his existing funds, when he wishes to do so.

This would be ideal I think.  However, I just have to confirm with the 'advisor'/Zurich what the charges are for transferring the pension.  She suggested that it would not be cost effective to do so to the point that it would be cheaper to cash in the whole pension and take the tax hit.  

If it is a straightforward unit linked plan with no guaranteed annuity rate any transfer charge is capped at 1% or £270 in your example.

You can get Hargreaves to do the work for you.

Thanks for this.  I am so glad I asked on this forum.  So much help from you guys!  1% of £27000 is a hell of a lot less that £1500!  

NedS

I'm wondering if there is some confusion here over the costs of transferring, and that someone has previously "advised" your husband on the basis of the cost of advice for transferring, assuming it to be high for a (relatively) small sum, but if he doesn't need advice, he doesn't need to incur those costs.

Also, I'm assuming his tax liability on £30,000 would be £2000, not £1500. He can withdraw 25% tax free (£7,500), leaving £22,500 taxable, but he has his unused annual tax allowance of £12,500, leaving £10,00 which is taxable at his marginal rate. Assuming this is BRT at 20%, he would pay £2000 (20% of £10,000) income tax.

Don't forget, in addition to making a contribution to your pension, he can also contribute £3600 gross (£2880 net) back into his own SIPP this tax year as he has no pensionable earnings.

Albermarle

caro69 said:

garmeg said:

caro69 said:

garmeg said:

caro69 said:

jamesd said:

caro69 said:

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000.  It is his only pension.  He is 63. It is inflexible and the only way he can use it is by taking his 25 per cent tax free and then an annuity.  Clearly the annuity is going to pay peanuts. 

The amount means that this recycling is OK so no need to worry about that.

It's not certain that the annuity will be peanuts. Older pensions quite often had guaranteed annuity rate that could exceed 10% a year, potentially £2,700 a yea. Or less, no way to  know without checking.

Has he taken a UFPLS payment from this plan? Until April 2020 partial lump sum payments were allowed by Zurich but now they only are if one has already been taken, or if it is an executive pension. It's useful to save income tax if he can do it.

Reading this past discussion may be useful, particularly interesting is dunstonh's "There is a cap of 1% on transfer charges once you hit the decumulation age (55). There are some types of charges that are not included within that though.". More on that subject including a letter from Zurich here. Since 1% is less than £30 and your husband can save a lot of tax by taking it over several tax years thi appears to be good news.

Given that it seems that checking if any guaranteed annuity value is worth having then, if not, transferring is the way to go. Unless that partial UFPLS from Zurich is available to him.

Thanks for replying James.  I will read through the treads above.

There do not appear to be any guarantees at all.  He can take three small lump sum payments, the first 25% of each is tax free.  The thing is we really do not want to take anything out at this stage just keep it invested.  The advisor led us to believe that we basically only had one option and that was to withdraw it all as, a. the charges involved in transferring it were huge (larger than the £1500 tax implication), b. if it goes over £30k then we are stuck with 25% withdrawal and the rest as an annuity.  We do not want an annuity.  I know that Zurich can't offer us a flexible drawdown facility as we enquired in the past.

Clearly, we have to confirm the charges for transferring it ourselves.  The idea of putting as much as possible into my SIPP (which I set up myself with HL), to keep as much as possible invested, came about as I knew my husband would not be able to invest it as he is currently not working.

As you are with Hargreaves Lansdown yourself, why not open a SIPP for your husband with them?

He can transfer into this SIPP and take three small pots of up to £10,000 each from here as and when required?

Hargreaves will create a small pot to do this, from his existing funds, when he wishes to do so.

This would be ideal I think.  However, I just have to confirm with the 'advisor'/Zurich what the charges are for transferring the pension.  She suggested that it would not be cost effective to do so to the point that it would be cheaper to cash in the whole pension and take the tax hit.  

If it is a straightforward unit linked plan with no guaranteed annuity rate any transfer charge is capped at 1% or £270 in your example.

You can get Hargreaves to do the work for you.

Thanks for this.  I am so glad I asked on this forum.  So much help from you guys!  1% of £27000 is a hell of a lot less that £1500!  

If he transferred to Fidelity ( a lower cost competitor of HL ) they would refund the transfer charges up to £500.

Dazed_and_C0nfused

NedS said:

I'm wondering if there is some confusion here over the costs of transferring, and that someone has previously "advised" your husband on the basis of the cost of advice for transferring, assuming it to be high for a (relatively) small sum, but if he doesn't need advice, he doesn't need to incur those costs.

Also, I'm assuming his tax liability on £30,000 would be £2000, not £1500. He can withdraw 25% tax free (£7,500), leaving £22,500 taxable, but he has his unused annual tax allowance of £12,500, leaving £10,00 which is taxable at his marginal rate. Assuming this is BRT at 20%, he would pay £2000 (20% of £10,000) income tax.

Don't forget, in addition to making a contribution to your pension, he can also contribute £3600 gross (£2880 net) back into his own SIPP this tax year as he has no pensionable earnings.

The £1,500 tax figure was based on this in the op,

My husband has a very old zurich ex allied Dunbar pension which is currently worth £27000

Linton

jamesd said:

While it's recycling, so long as the tax free money received within a rolling twelve month period by her doesn't exceed £7,500 it's permitted. Since 25% of £30,000 is £7,500 we can be certain that just his pot worth no more than £30,000 won't produce any extra HMRC charges beyond just income tax, so caro69 can ignore this.

Linton said:

What you propose is not pension recycling as it is moving money from one person to another.  You can only recycle the proceeds from your own pension.

Not so. It's still recycling and potentially caught by the rules that restrict the recycling of tax free lump sums. Based on guidance that HMRC have given people it's why I write that one party should get the money into an account in their sole name and give it to the other person into an account in their own sole name. This post is key:

"back in 2014 the firm I work for sent a query to HMRC regarding a similar situation.

We queried a situation where an individual received their tax free cash, gifted some of this to their spouse, and the spouse made a significant contribution to their pension. We asked whether this would be caught under the recycling rules, indicating that we thought it would not because the contributions paid by the spouse were not paid into a registered pension scheme "in respect of the individual" who had received the tax free cash.

We were told in writing that we were interpreting the legislation correctly and that this would not be caught by the recycling rules.

Worth mentioning that it is potentially important that the tax free cash is paid to the original member first, and not directly to the spouse. We've recently received confirmation in writing that payment of tax free cash to someone other than the original member (for example directly into a bank account in the name of their spouse) is potentially going to lead to tax charges. It is possible this could be challenged successfully if a case ever arose, but perhaps best not to test that out!"

I used to have the same view as you but no longer do.

???? your quote is saying it is OK if  the husband withdraws the money, gives it to the wife who puts it in her pension.  The SIPP/PP company surely would not pay out directly to the wife anyway but rather to the bank account linked to the pension which would normally be the husband's.

So I am not clear what point you are making.  Is it just that the husband and wife should gave different bank accounts and that a joint one would not work, which is surely a relatively minor implementation detail on the general principle.