UFPLS, MPAA & Recycling Rules

DoDa

I am planning to retire in September 2021 by which point £22K will have been paid via salary sacrifice into my occupational DC pension and £11K into my SIPP for the 2012/22 tax year. I would like to take an UFPLS of £30K once retired, but am not sure if this would be allowed with respect to the MPAA rules. Taking a UFPLS of £30K will trigger the MPAA, but I don’t understand if the £4K contribution limit applies to the whole tax year in which it was taken or just future contributions. Please can someone clarify.

I could delay taking the UFPLS until 2022/23 tax year as I understand that UFPLS withdrawals are not considered in the pension recycling rules. i.e. to remain within the basic rate tax and I could take a £67K UFPLS in the 2022/23 tax year without falling foul of the pension recycling rules despite DC contributions in excess of £100K in the previous 3 tax years. Is this correct? 

Albermarle

Recycling rules concern people who take out a Tax free lump sum and then add this to a pension . This does not seem relevant in your case .

EdSwippet

DoDa said:

... Taking a UFPLS of £30K will trigger the MPAA, but I don’t understand if the £4K contribution limit applies to the whole tax year in which it was taken or just future contributions. Please can someone clarify.

https://techzone.adviserzone.com/anon/public/pensions/guide-pension-annual-allowance#anchor_7

First year:
The MPAA takes effect from the date it was triggered onwards.

So in the tax year in which the MPAA is triggered there are two separate AA tests.
1. Over the entire tax year has more than £40,000 (or the tapered allowance for high earners) been paid into a money purchase scheme? and
2. Was more than £4,000 contributed from the date the MPAA was triggered until the end of the tax year?

...

Subsequent years
Where the MPAA applies for the whole of the tax year, then DC contributions are limited to £4,000 overall, and any amount paid in excess of that will be liable for the annual allowance tax charge.

DoDa

Thank you for the clarification EdSwippet, so my plan is within the rules. Is my understanding that UFPLS withdrawals are not considered in the pension recycling rules correct? 

TVAS

Two different things.
If you take UFPLS so £7,500 TFC and £22,500 income all you have to do is pay 4k into a pension (total employee and employer) FROM THAT DATE.
You are allowed to do the above so it is NOT recycling.
 https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810#IDAF5PQB and read the section headed 'Circumstances where the recycling rule does not apply'. 
Any reason why you are not taking just TFC of 25%? Is it because you will still have unused personal tax allowance because you have been heavy on salary sacrifice? Also MPAA does not apply.
Can you delay any payment from Month 6 September to Month 12 March 2022? Better emergency tax treatment as you are at the end of the tax year and any under or overpayments get sorted quickly in the subsequent tax year.

bluenose1

You could also consider using small pots rule to get 3 x £10,000 out of SIPP without affecting MPAA.
I will be doing that with my HL SIPP, though not a withdrawal option for my D.C. pot.

Albermarle

bluenose1 said:

You could also consider using small pots rule to get 3 x £10,000 out of SIPP without affecting MPAA.
I will be doing that with my HL SIPP, though not a withdrawal option for my D.C. pot.

I do not believe it is an option with  any mainstream pension /SIPP provider , apart from HL.