Take pension before I stop work or not

player1_2

Doctor_Who said:

player1_2 said:

dunstonh said

There is no 25% tax free cash with the defined benefit pension.    Defined benefit schemes get pension commencement lump sum (PCLS).  This is because there is no pot of money to apply 25% to.  It uses a defined calculation instead.

But given the PCLS is tax free, does it count towards the overall TFLS cap ? ( 25% of LTA figure )

I have both DB and DC pensions. My understanding is that the PCLS from a DB pension counts towards the tax free lump sum limit just as much as the 25% TFC from a DC pension.

That was my assumption, thanks 

Pat38493

Qyburn said:

Pat38493 said:

It might make sense if you also paid the DB pension payment amounts back into the pension and effectively moved each payment into your DC pension.  However this might cause you some theoretical issues with pension recycling guidelines, 

Would it count as recycling if his increased pension contributions were funded solely by income from the DB pension, even though a tax free sum was received as well?

In my opinion not if he could demonstrate that only hte actual DB pension payments income that had already been taxed was put back into the pension.

Given that there was never so far a court case about pension recycling as I understand, I'm not sure if you can be 100% sure.  It would also help if could demonstrate that the PCLS was spent on something else specific like paying off a mortgage or whatever.

From prior comments on here, it seems like nobody on these boards (even those who work in the industry) has ever heard of anyone being penalized for pension recycling in real life, but of course that doesn't mean it doesn't happen for sure or won't happen in future.

Albermarle

Pat38493 said:

Qyburn said:

Pat38493 said:

It might make sense if you also paid the DB pension payment amounts back into the pension and effectively moved each payment into your DC pension.  However this might cause you some theoretical issues with pension recycling guidelines, 

Would it count as recycling if his increased pension contributions were funded solely by income from the DB pension, even though a tax free sum was received as well?

In my opinion not if he could demonstrate that only hte actual DB pension payments income that had already been taxed was put back into the pension.

Given that there was never so far a court case about pension recycling as I understand, I'm not sure if you can be 100% sure.  It would also help if could demonstrate that the PCLS was spent on something else specific like paying off a mortgage or whatever.

From prior comments on here, it seems like nobody on these boards (even those who work in the industry) has ever heard of anyone being penalized for pension recycling in real life, but of course that doesn't mean it doesn't happen for sure or won't happen in future.

I do not think the actual source of the extra contributions matters?  What is important is that you pass the various recycling tests ( or not) . Although as you say it seems that it is not a top priority for HMRC anyway.

Pat38493

Albermarle said:

Pat38493 said:

Qyburn said:

Pat38493 said:

It might make sense if you also paid the DB pension payment amounts back into the pension and effectively moved each payment into your DC pension.  However this might cause you some theoretical issues with pension recycling guidelines, 

Would it count as recycling if his increased pension contributions were funded solely by income from the DB pension, even though a tax free sum was received as well?

In my opinion not if he could demonstrate that only hte actual DB pension payments income that had already been taxed was put back into the pension.

Given that there was never so far a court case about pension recycling as I understand, I'm not sure if you can be 100% sure.  It would also help if could demonstrate that the PCLS was spent on something else specific like paying off a mortgage or whatever.

From prior comments on here, it seems like nobody on these boards (even those who work in the industry) has ever heard of anyone being penalized for pension recycling in real life, but of course that doesn't mean it doesn't happen for sure or won't happen in future.

I do not think the actual source of the extra contributions matters?  What is important is that you pass the various recycling tests ( or not) . Although as you say it seems that it is not a top priority for HMRC anyway.

Yes, but all the tests has to be met and the last test is that the activities has to be carried out "with the sole intent of recycling tax free cash".  It is for HMRC to prove that this is the case and I think it would be difficult for them to argue this if you took out a PCLS to pay off a mortgage and then paid the pension income into a DC pension.  The guidelines also say "normal retirement planning" is an exemption - wanting to pay off your mortgage before you retire is in my view "normal retirement planning".