Forces pension recycling rules

Hi, maybe a bit niche but I know some ex-forces on here:

I've been reading a bit on pension income being used to contribute into pension pots. It seems a common discussion on the forum  but I've noticed posters mention recycling rules to be wary of which from my understanding is about using tax free pension to put into a pension pot. My situation as follows:

In a couple of years I will be in receipt of a forces immediate pension at age 40.  I expect to be in full employment whilst collecting this and be a base rate taxpayer.  I suspect the pension would have the relevant tax code so that I receive an equal post-tax monthly amount. I will also be contributing to whatever type of pension scheme my employer would have. 

I was considering to pretty much put my full monthly pension into a DC pot every month- would I fall foul of recycling rules? If I would, it's no great shame, I would just have to spend it on beer instead of wasting it on pension contributions.

Replies

  • EmmiaEmmia Forumite
    1.9K Posts
    1,000 Posts Second Anniversary Photogenic Name Dropper
    Forumite
    You don't have to spend it on beer, you could put it into an ISA instead of a pension.
  • draiggochdraiggoch Forumite
    135 Posts
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    Forumite
    You are not paying in a lump sum just a decent amount from your monthly wage. Many pensioners already do this with no issues. 
    Probably a better option depending on employer options is to pay more in to the workplace scheme and living on the armed forces pension.
  • edited 23 January at 12:12AM
    artyboyartyboy Forumite
    388 Posts
    100 Posts Name Dropper
    Forumite
    edited 23 January at 12:12AM
    The short answer is that you should not have any issues if you did want to (let's say) increase the amount you pay into your pension by an amount that's broadly equivalent to the additional amount you
    might happen to get from your forces pension.

    Let's face it, recycling is a rule more honoured in the breach than the observance. If you choose to put more of your earned income into pension and use the forces payment to bridge the gap for your living expenses, how on earth would HMRC ever be able to argue that it was recycling...?

    Assuming of course you don't go and open a separate bank account to receive just your forces pension into, give it a nickname of 'pension recycling account' and then directly pay that money into a SIPP, then you'll be fine  :D
  • edited 23 January at 12:44AM
    Getting_greyerGetting_greyer Forumite
    606 Posts
    500 Posts Third Anniversary Name Dropper
    Forumite
    edited 23 January at 12:44AM
    artyboy said:
    The short answer is that you should not have any issues if you did want to (let's say) increase the amount you pay into your pension by an amount that's broadly equivalent to the additional amount you
    might happen to get from your forces pension.

    Let's face it, recycling is a rule more honoured in the breach than the observance. If you choose to put more of your earned income into pension and use the forces payment to bridge the gap for your living expenses, how on earth would HMRC ever be able to argue that it was recycling...?

    Assuming of course you don't go and open a separate bank account to receive just your forces pension into, give it a nickname of 'pension recycling account' and then directly pay that money into a SIPP, then you'll be fine  :D
    Yeah I was pondering that, if there was a rule against it, if both pension and earnings hit my current account at the same time how would anyone know which has been used. But guess you've answered my question.
  • MarconMarcon Forumite
    7.6K Posts
    Sixth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Forumite
    Hi, maybe a bit niche but I know some ex-forces on here:

    I've been reading a bit on pension income being used to contribute into pension pots. It seems a common discussion on the forum  but I've noticed posters mention recycling rules to be wary of which from my understanding is about using tax free pension to put into a pension pot. My situation as follows:

    In a couple of years I will be in receipt of a forces immediate pension at age 40.  I expect to be in full employment whilst collecting this and be a base rate taxpayer.  I suspect the pension would have the relevant tax code so that I receive an equal post-tax monthly amount. I will also be contributing to whatever type of pension scheme my employer would have. 

    I was considering to pretty much put my full monthly pension into a DC pot every month- would I fall foul of recycling rules? If I would, it's no great shame, I would just have to spend it on beer instead of wasting it on pension contributions.
    This might be a bit more technical than you fancy reading, but even so it's a useful overview: https://techzone.abrdn.com/public/pensions/tech-guide-recycle-tax-free-cash
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • Getting_greyerGetting_greyer Forumite
    606 Posts
    500 Posts Third Anniversary Name Dropper
    Forumite
    Cheers for the link. Looks like I'll be OK as the monthly pension would be taxed. As long as I have enough pensionable earnings and haven't done that mpaa thing I'll be OK.  

    I would also have a tax free lump sum, possibly would be in the wrong to reinvest that but I won't be anyway so no dramas.

  • LintonLinton Forumite
    16.1K Posts
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    Forumite
    The recycling rules do not apply to taxable income from DB pensions so there would appear  to be no problem for the OP.


  • AudaxerAudaxer Forumite
    3.4K Posts
    Sixth Anniversary 1,000 Posts Name Dropper
    Forumite

    I would also have a tax free lump sum, possibly would be in the wrong to reinvest that but I won't be anyway so no dramas.

    If the tax free lump sum was from your DB pension is over £7,500, and the other conditions in the HMRC recycling rules are met, then it could be classed as recycling. See link below for all the conditions which would have to be met before it could be classed as recycling:
    PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Sign In or Register to comment.
Latest MSE News and Guides

British Gas prepay meter users...

...to pay less for gas from 1 April

MSE News

The 'odd Easter flavours' thread 2023

What bizarre food stuffs have you spied?

MSE Forum

Energy Price Guarantee calculator

How much you'll likely pay from April

MSE Tools