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Recycling £7500 per year if still working after 55

As I understand it, there is nothing to step me from taking £7500 of tax free cash out of my DC pensions each year, and then feeding it right back in again, as amounts of £7500 or less are not subject to recycling checks.

If you are a higher rate taxpayer and still employed with 40% relief still on the table, this will give most of us an instant 20% gain (assuming 20% taxpayer in retirement), plus another percent from further accrued tax free cash, plus even more from salary sacrifice and employer NI sharing if still available to cycle it through the employer payroll.

Therefore the benefit of doing this could be more than £2K per year.

I am just wondering though why everyone who has access to their DC pots and not retired yet is not doing this?  Maybe this is a standard thing for IFAs to do for their clients?  The benefit is larger than the famous £2880 pension contribution after retirement?

Comments

  • NoMore
    NoMore Posts: 1,443 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    You would need to crystallise 30k of your pension pot every year to get the 7500k tax free, after a few years that's possibly a lot of your pension crystallised, do people really want to do this before even properly commencing drawdown after employment ?
  • ader42
    ader42 Posts: 323 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    It depends on the size of your pot and expectations of the pot growth in the future with respect to the tax-free cash maximum.

    If you are certain to exceed the £268,275 maximum tax-free cash amount then fine, but for many they will want to maximise their tax-free cash by not crystallizing early. 
  • sevenhills
    sevenhills Posts: 5,938 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    It does make me think if I could claim my local authority pension and keep working. It would make me feel richer and any excess that I did not spend, could go into my SIPP for the pension tax relief.
    It would then hopefully grow with the stock market, whereas LA pensions don't grow, at least only with inflation.
  • hugheskevi
    hugheskevi Posts: 4,348 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    It does make me think if I could claim my local authority pension and keep working. It would make me feel richer and any excess that I did not spend, could go into my SIPP for the pension tax relief.
    It would then hopefully grow with the stock market, whereas LA pensions don't grow, at least only with inflation.
    Assuming that you are above minimum pension age but below normal pension age, the LA pension will 'grow' in line with the reduction in the actuarial reduction rather than the indexation of CPI.

    The actuarial reduction is calculated using a discount rate of CPI+1.7%, so that would be the key metric to consider, not CPI.
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