Trigger getting pulled today - Anyone see any Major mistakes with my action plan???

sgx2000

Thanks MallyGirl

I agree
And if asked could show the deduction from my Bond account.
But if picked up, you could just imagine how long HMRC would take to make a reasonable decision...lol


 

MK62

According to HMRC, they don't care where the money for the contribution comes from......all that matters is that TFC above a certain level was taken over 12 months, and contributions within the reference window increased above  certain thresholds........after that it's down to preplanning.......and in this case that might be a tough sell.....if they ask that is!

sgx2000

Again thanks MK62

Everything I have read tonight is all about HMRC stopping TFC being recycled.  Into another pension..

I will  not be using TFC to add to my pension pot.  It will be my own cash.
And when i  set up the annuity I will be taking TFC 
But I have no intention of using this to invest in another pension

And so,  as far as I have read (yes I know only a few hours)  they would only be interested if they could see either...

1. A new pension set up with an unusual input
or
2. An existing pension with a sudden increase in input

BUT....I am still reading....

Pat38493

sgx2000 said:

Again thanks MK62

Everything I have read tonight is all about HMRC stopping TFC being recycled.  Into another pension..

I will  not be using TFC to add to my pension pot.  It will be my own cash.
And when i  set up the annuity I will be taking TFC 
But I have no intention of using this to invest in another pension

And so,  as far as I have read (yes I know only a few hours)  they would only be interested if they could see either...

1. A new pension set up with an unusual input
or
2. An existing pension with a sudden increase in input

BUT....I am still reading....

In one of the examples on the HMRC guideline site, it says that having sufficient cash savings to cover the payment into the pension at the time you take the PCLS does not preclude the possibility that this might be recycling E.g. if you would have otherwise needed those cash saving to maintain the same lifestyle and level of pension contributions.  However, in my personal opinion based on what you’ve described they would not be chasing you on that basis.  Either that or I suspect a lot of people are in for a nasty shock somewhere down the line.  

However, if taking the PCLS is incidental to everything else you did and you would have done it all anyway, then per definition they cannot say that your contributions are higher than they otherwise would have been.  

MK62

Part of the problem is that the recycling rules themselves are vague and require further explanation/clarification........and the clarification examples, along with the accompanying explanations provided by HMRC, seem a little vague and contradictory themselves......that said, I expect trying to come up with a simple set of rules to catch all forms of PCLS recycling, while at the same time not precluding normal retirement planning, is something of an impossible task, and the vagueness at least gives HMRC some flexibility in applying these rules to individual cases. How they actually interpret and apply these rules in practice, I don't know (not sure anyone does tbh, outside of HMRC themselves).......all that can be said is "here are the rules", it's up to each individual to decide how to interpret them and whether to risk potentially breaking them.
I have this dilemma myself (well technically my OH does), and we've decided to stick within the letter of the rules, at least as we see them anyway........the prospect of a sizable penalty (however remote) is, in our case, enough of a deterrent to put us off trying to get every last £ of tax relief potentially available......and tbh, this might well be the desired effect of the recycling rules as they are.

Pat38493

MK62 said:

Part of the problem is that the recycling rules themselves are vague and require further explanation/clarification........and the clarification examples, along with the accompanying explanations provided by HMRC, seem a little vague and contradictory themselves......that said, I expect trying to come up with a simple set of rules to catch all forms of PCLS recycling, while at the same time not precluding normal retirement planning, is something of an impossible task, and the vagueness at least gives HMRC some flexibility in applying these rules to individual cases. How they actually interpret and apply these rules in practice, I don't know (not sure anyone does tbh, outside of HMRC themselves).......all that can be said is "here are the rules", it's up to each individual to decide how to interpret them and whether to risk potentially breaking them.
I have this dilemma myself (well technically my OH does), and we've decided to stick within the letter of the rules, at least as we see them anyway........the prospect of a sizable penalty (however remote) is, in our case, enough of a deterrent to put us off trying to get every last £ of tax relief potentially available......and tbh, this might well be the desired effect of the recycling rules as they are.

What I suspect is that the rules are there to deter adviser firms from doing industrial scale recycling.  

If a company called "Acme pension laundry" sent out leaflets saying that if you transfer your 700K pot to them, for small cut they can iteratively recycle your tax free cash to the maximum degree possible, this would be easy to catch and prove.

On the other hand does HMRC really want to chase individual taxpayers doing the type of things mentioned in this thread given that
- HMRC has to prove, potentially in a court of law, what was in the person's brain when they made the decision.
- The maximum TFC you can get in your lifetime is 268K and is set to shrink in real terms in future.
- Each time you try to recycle some tax free cash, the amount is involved is divided by factor of 4, so it very quickly reaches the law of diminishing returns.

sgx2000

I agree Pat38493

The company I work for (300+staff) employs a pension advisor.
I have no idea of what level of support the company pays for. but.....

So I have emailed them today with full details of what I am proposing.

I would think they will either say 'not covered' or give a generic answer....

But we will see....
Hopefully they will get back to me today

Funds are now sitting in my bank ready to add to pension
Figures checked,  leaving a little headroom

MK62

Pat38493 said:

MK62 said:

Part of the problem is that the recycling rules themselves are vague and require further explanation/clarification........and the clarification examples, along with the accompanying explanations provided by HMRC, seem a little vague and contradictory themselves......that said, I expect trying to come up with a simple set of rules to catch all forms of PCLS recycling, while at the same time not precluding normal retirement planning, is something of an impossible task, and the vagueness at least gives HMRC some flexibility in applying these rules to individual cases. How they actually interpret and apply these rules in practice, I don't know (not sure anyone does tbh, outside of HMRC themselves).......all that can be said is "here are the rules", it's up to each individual to decide how to interpret them and whether to risk potentially breaking them.
I have this dilemma myself (well technically my OH does), and we've decided to stick within the letter of the rules, at least as we see them anyway........the prospect of a sizable penalty (however remote) is, in our case, enough of a deterrent to put us off trying to get every last £ of tax relief potentially available......and tbh, this might well be the desired effect of the recycling rules as they are.

What I suspect is that the rules are there to deter adviser firms from doing industrial scale recycling.  

If a company called "Acme pension laundry" sent out leaflets saying that if you transfer your 700K pot to them, for small cut they can iteratively recycle your tax free cash to the maximum degree possible, this would be easy to catch and prove.

On the other hand does HMRC really want to chase individual taxpayers doing the type of things mentioned in this thread given that
- HMRC has to prove, potentially in a court of law, what was in the person's brain when they made the decision.
- The maximum TFC you can get in your lifetime is 268K and is set to shrink in real terms in future.
- Each time you try to recycle some tax free cash, the amount is involved is divided by factor of 4, so it very quickly reaches the law of diminishing returns.

Unless you've been arrested and charged with a crime, any case HMRC brought would most likely be in civil court, where proof is based on the balance of probabilities......in any case though, at least AFAIK, nobody has yet been taken to court for breaking PCLS recycling rules.

You might well be right about not getting caught by these rules atm, however I think I'm a little less certain about whether HMRC might, at some point, decide to crack down on this........at least for the more clear cut cases. Personally I think it might be more down to resources (or lack of) and priorities, but it's likely only the big cheeses at HMRC know for sure.

sgx2000

Hi All
An update....
I sent an email to the company pension advisors this morning.
Their reply was - we cannot advise but one of my colleagues has made some comments

I have highlighted their comments in bold italics

My action Plan

Action 1.  I have just arranged to drop to working 4 day week from January

Action 2.  Take £26,000 from premium bonds (into bank)

Action 3.  Add £26,000 to Current Aviva pension

(telephone conversation yesterday to Aviva - I was told tax relief would be added immediately) so £32,500 added to existing fund
New fund value £112,467 – From your comments, assuming the Government pension is a final salary pension, and you have not accessed any other pension benefits flexibly, you should be able to contribute to your Aviva pension. Your contributions are restricted to the lower of the annual allowance which is £60,000 or your relevant earnings during the tax year (typically your salary). Any contributions above this with be considered an unauthorised payment. As your salary is reducing in January 2024, it will be a slightly more difficult calculation to establish your relevant earnings as well as the pension contributions made through your employment during the 2023/24 tax year.

Action 4.  Start Annuity with L&G. (Using £110,000 BUT leaving £2467 residual balance with Aviva )

(Residual balance left so that my employer can continue paying into my Aviva Pension until I retire at 66)

As mentioned on our call, are you looking to purchase the annuity with drawdown funds only, or a combination of tax free cash and drawdowns funds? The former is the traditional way to purchase a pension annuity. The latter is somewhat unconventional, as you are effectively using tax free cash to purchase a taxable income, this is something to consider and worth checking that the provider can facilitate this.  

L&G online quote (inc medical) Flat, Single life, 10 year guaranty, 25% TFLS - £6,379 per year and a TFLS of £27500  - (Back to Premium bonds for now)

My Questions

1. Broadly speaking do you see any major issues with the above?
2. Given the Tax Free Lump Sum will not be used for future pensions and will be re-deposited into Premium Bonds – Do you see any potential issues with perceived Pension Recycling etc. 

1. Pension tax free cash recycling rules are complex and generally speaking, we do not suggest people withdraw tax free cash then make significant lump sum pension contributions. https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling this is a really useful guide which outlines the rules relating to pension recycling which will provide further context.

Really interesting comments
Some a little confused as to what I am after 
But still very helpfull

Cash going into pension tomorrow......
Pension withdrawl to annuity as soon as tax relief is applied

Many thanks to everyone who has helped along the way

wjr4

sgx2000 said:

As mentioned on our call, are you looking to purchase the annuity with drawdown funds only, or a combination of tax free cash and drawdowns funds? The former is the traditional way to purchase a pension annuity. The latter is somewhat unconventional, as you are effectively using tax free cash to purchase a taxable income, this is something to consider and worth checking that the provider can facilitate this.  

I think they have got confused at this part. I think they think you aren’t taking tax free cash from the uncrystallised part. Make sure you tell the annuity provider that part of the pension is uncrystsllised, with the majority crystallised.