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Recycling and lump sum tax

Hi,

I have a preserved civil service pension.  I am in employment outside the civil service earning up to 90k depending on add-ons. I currently pay £400 a month into my SIPP as salary sacrifice and my employer contributes the same and will match up to 10% of my salary. 

If I take my preserved pension early I will receive a lump sum of £26k and an annual pension  of £8.5k.
I have 2 questions.
Will I pay tax on the lump sum of 26k
Am I able to increase my salary sacrifice contributions from my salary to my SIPP to £8.5k a year and my employer matches that, or will that be recyling

Thanks in advance for any help     

Comments

  • leosayer
    leosayer Posts: 544 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    You only pay tax on lump sums when, in total, they exceed £268k.

    They key test for recycling is whether it was pre-planned because of the lump sum. So the question is, are you increasing your pension contributions because of the lump sum you will receive?
  • sammyjammy
    sammyjammy Posts: 7,784 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    leosayer said:
    You only pay tax on lump sums when, in total, they exceed £268k.

    They key test for recycling is whether it was pre-planned because of the lump sum. So the question is, are you increasing your pension contributions because of the lump sum you will receive?
    It appears the OP is proposing to pay the actual pension into the SIPP not the lump sum.
    "You've been reading SOS when it's just your clock reading 5:05 "
  • My idea is to increase my pension contributions because of the £8k a year pension I will receive, although I could do it without the pension, I want to have the same net salary as i do now.  Im not going to pay the pension directly into my SIPP, but use salary sacrifice to do that, and the pension will keep my net salary the same. The lump sum will be used to pay off part of the mortgage Does that clarify?  
  • xylophone
    xylophone Posts: 45,426 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 15 August 2023 at 1:50PM
    https://techzone.abrdn.com/public/pensions/tech-guide-recycle-tax-free-cash


    Pension income recycling 


    Individuals can recycle excess pension income into their pension scheme, within the normal tax relief and annual allowance rules.
    But there’s an additional restriction for those who have taken benefits flexibly from a defined contribution scheme as this triggers the money purchase annual allowance (MPPA).


    You would be  drawing a pension from a Defined Benefit scheme. Taking pension income from such a scheme does not trigger the MPAA. 
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