Pension recycling

Audaxer

Linton said:

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.

The only way I think it would break the rules is if the husband made the payment directly into his wife's pension from his bank account. I think he would have to pay (gift) the money into his wife's bank account first, which would then allow his wife to make the contribution directly from her bank account to her pension. I think jamesd means that is step that needs to be taken first. 

jamesd

Linton said:
???? 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.

This: "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."

A joint account is quite common and might be used even if one not in the sole name of the wife is used. Pay into husband's sole account and transfer to wife's sole establishes that it is a gift after receipt rather than directly paid to her.

The bit about it being recycling too but this is more so you know why I changed my mind, so you might change yours.

jamesd

caro69 said:
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.  

Worth considering that the charges of the adviser may be substantial. Since no adviser is needed you could just ask HL or Fidelity to do it, free.

caro69

jamesd said:

caro69 said:
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.  

Worth considering that the charges of the adviser may be substantial. Since no adviser is needed you could just ask HL or Fidelity to do it, free.

I think that's the crux of it.  I think it's her charges that would not make it worthwhile not Zurich exit fees.  But she advised my husband to cash in his pension without explaining that.  Surely that's not good financial advice.  Will confirm it with her and Zurich Monday and report back.  Quite happy to go to hl or fidelity for free and keep his pension! 

NottinghamKnight

caro69 said:

jamesd said:

caro69 said:
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.  

Worth considering that the charges of the adviser may be substantial. Since no adviser is needed you could just ask HL or Fidelity to do it, free.

I think that's the crux of it.  I think it's her charges that would not make it worthwhile not Zurich exit fees.  But she advised my husband to cash in his pension without explaining that.  Surely that's not good financial advice.  Will confirm it with her and Zurich Monday and report back.  Quite happy to go to hl or fidelity for free and keep his pension! 

Well you received the 'advice' vakue that you paid for, nothing as I see it, and a useful lesson in how costly employing advisers can be when you can do much of it yourself, especially the simple stuff.

caro69

jamesd said:

caro69 said:
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.  

Worth considering that the charges of the adviser may be substantial. Since no adviser is needed you could just ask HL or Fidelity to do it, free.

I've read about the 1% cap on exit fees.  Is it possible there may be hidden fees that Zurich impose on transferring. Ie might they be able to reduce the value of the pot say.  I've seen mention of 10 to 15% of pot value  or would this only apply to those under 55 years old? 

Albermarle

caro69 said:

jamesd said:

caro69 said:
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.  

Worth considering that the charges of the adviser may be substantial. Since no adviser is needed you could just ask HL or Fidelity to do it, free.

I've read about the 1% cap on exit fees.  Is it possible there may be hidden fees that Zurich impose on transferring. Ie might they be able to reduce the value of the pot say.  I've seen mention of 10 to 15% of pot value  or would this only apply to those under 55 years old? 

Such a scenario would seem highly unlikely , unless there is really something unusual about the pension .
Until you talk to Zurich direct then we are ( and you ) are all a bit in the dark.

caro69

Albermarle said:

caro69 said:

jamesd said:

caro69 said:
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.  

Worth considering that the charges of the adviser may be substantial. Since no adviser is needed you could just ask HL or Fidelity to do it, free.

I've read about the 1% cap on exit fees.  Is it possible there may be hidden fees that Zurich impose on transferring. Ie might they be able to reduce the value of the pot say.  I've seen mention of 10 to 15% of pot value  or would this only apply to those under 55 years old? 

Such a scenario would seem highly unlikely , unless there is really something unusual about the pension .
Until you talk to Zurich direct then we are ( and you ) are all a bit in the dark.

Will do that and report back tomorrow.

caro69

So, having spoken to Zurich there are no charges at all for transferring the pension pot to another provider.  I have contacted the adviser for clarification of why she told us the transfer fees made in unworthwhile and that Mr Husband should cash it in instead.  Apparently she would charge 5% for doing the transfer and then there would be ongoing charges within the new pension fund.  So we can transfer to Fidelity or HL easily, apart from their costs which is looking in the range of a couple of hundred pounds and ongoing fees of course.
So now I'm back to thinking should we transfer or withdraw.  Back to my original question of recycling hubbies pension into mine over time.  Then we would benefit from tax relief although the remainder of his pot would be out the of market for a while.
Decisions, decisions . . . 

jamesd

Excellent news! HL will even pay him  to transfer.

On decisions please read the part of this post before "The AVCs". You're on the right track.

Even not working he can pay in £3,600 gross, £2,880 net, and should. He gets the tax rellief on the money even if paying no tax.