Put DB pension into payment and put into DC

Pat38493

Is there anything to stop me putting my DB pension into payment (early) and then paying the pension into a DC fund (obviously as long as I also have earned income to cover it)?

As far as I can tell this would not be pension recycling because I am not using tax free cash to put back - I am subsidising it with DB pension income?

I was wondering if this could be a neat way to go part time for a few years before proper retirement, but without potentially having to stop contributing to the DC funds through the employer (and therefore losing out on free money).

xylophone

https://techzone.abrdn.com/public/pensions/tech-guide-recycle-tax-free-cash

I don't see any problem with the plan.

And taking a DB pension does not trigger MPAA rules.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/money-purchase-annual-allowance-mpaa

daveshep26

Pat38493 said:

Is there anything to stop me putting my DB pension into payment (early) and then paying the pension into a DC fund (obviously as long as I also have earned income to cover it)?

As far as I can tell this would not be pension recycling because I am not using tax free cash to put back - I am subsidising it with DB pension income?

I was wondering if this could be a neat way to go part time for a few years before proper retirement, but without potentially having to stop contributing to the DC funds through the employer (and therefore losing out on free money).

Yes – I’m seriously considering this for one of my DBs (taking about ~ 5yrs early before 60); - have  a bit of an eye to return of LTA in the next several years (always was a bit of a pessimist) but primarily I’m also thinking of partial retirement at some point/ supplementing DC contributions to that point.

If you’re not in position of concern that you have plenty enough indexed linked guaranteed income from 60/ SPA + age… then (effectively) switching your modes like that can provide some flexibility to overall options.  

Pat38493

xylophone said:

https://techzone.abrdn.com/public/pensions/tech-guide-recycle-tax-free-cash

I don't see any problem with the plan.

And taking a DB pension does not trigger MPAA rules.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/money-purchase-annual-allowance-mpaa

Thanks and this was my thinking too.

Theoretically this means you could put your DB into payment and get it paid to you with no tax for as long as you are still working.  (you would I guess have to accept early payment reductions of course).

I guess the more complicated one would be - what if you did take the PCLS from the DB pension, but you could show the paper trail that the lump sum itself was used to go into an ISAs and paying off mortgage or whatever, and it was only the taxable pension income that you were using to increase (or maintain if reducing working hours) your DC pension contributions?

This is probably one of those ones where nobody knows because it's never been to court around pension recycling I guess, but I think you could argue that is was justified as you would have been able to do it even without the PCLS.

DT2001

I took my DB pension early (51) as I was earning very little (self employed) as I am primarily a house husband. I have topped my SIPP up by £3,600 for a few years (so no problem) and once by more when I had a more lucrative short term contract. 

Do you have any GMP in the DB pension? If so check what happens at 65 regarding franking of increases. I will end up with a pension that is completely GMP part of which does not increase and part by 3% max (rules changed in 2016 with new SP).

I think you will be fine with your plan. Are you just replacing your income, from going p/time, with your DB pension? If you are increasing your total income and payments into your pension can you rely on Xylophone’s link stating that HMRC are happy with increased pension contributions towards retirement by using savings etc.

Pat38493

DT2001 said:

I think you will be fine with your plan. Are you just replacing your income, from going p/time, with your DB pension? 

I don't know yet - it could be either approach - I was mainly just wondering if it was worth running up some modelling on that scenario to see if it is beneficial compared to just waiting until I've stopped working or using tax free cash to plug any gaps from part time working.  I am expecting a DB pension estimate for early retirement 55 soon - I will need to see if it is along the lines of my manual calculations, and also will need to see if the PCLS commutation rate is as massively generous as the one on the last estimate they sent me or if that was an error.

DT2001

Pat38493 said:

DT2001 said:

I think you will be fine with your plan. Are you just replacing your income, from going p/time, with your DB pension? 

I don't know yet - it could be either approach - I was mainly just wondering if it was worth running up some modelling on that scenario to see if it is beneficial compared to just waiting until I've stopped working or using tax free cash to plug any gaps from part time working.  I am expecting a DB pension estimate for early retirement 55 soon - I will need to see if it is along the lines of my manual calculations, and also will need to see if the PCLS commutation rate is as massively generous as the one on the last estimate they sent me or if that was an error.

Another advantage for me taking DB early, when not needing the income, was the ability to balance investments with OH. We now have roughly equal SIPPs and ISASs and small DB’s (£9k and £4.5k - the latter index linked and the former, from 65, 50% no increase and 50% max3%). If I live to average life expectancy I will, on paper, have lost out by drawing down early however I will have frontloaded income so it fitted in with my expected semi/retirement expenditure.