Pension Recycling am I over worrying?

leosayer

In my mind, unless you are systematically taking TFC year after year whilst still earning and contributing then it's hard to see how any such normal financial planning / tax efficiency could be classified as recycling. 

nofuse

Andreg said:  

There are two 30% rules: 1) have contributions increased more than 30% above what might have been expected and 2) are the additional contributions more than 30% of the TFLS.  So, applying the second rule, if you retire in April 2024, earn nothing after that and take more than £336k tax free cash at that time, then the £44k you contributed in 2022-23 plus the £57k you contributed in 2023-24 will amount to less than 30% of the tax free cash.  (i.e. 44+57 < 30% x 336)

However if you retire in April 2024 but live off savings for a year and take your TFLS in April 2025, the 2022-23 contribution drops out of the analysis, so you will only need to take more than £190k tax free cash for the £57k 2023-4 contribution to be less than 30%.  (i.e. 57 < 30% x 190)

Sorry to dig up an old post but looking in to this with interest.

Isn’t the 30% contribution defined as “extra contributions”? 

So if the normal contribution was £24k in 2021-2022 and there was an additional £20k in 2022-2023 and an additional £33k in 2023-2024, the total amount of additional contributions was £53k.

So providing there are no additional contributions over £24k in the next three years and the TFLS is over £177k, no recycling has happened?

Pat38493

nofuse said:

Andreg said:  

There are two 30% rules: 1) have contributions increased more than 30% above what might have been expected and 2) are the additional contributions more than 30% of the TFLS.  So, applying the second rule, if you retire in April 2024, earn nothing after that and take more than £336k tax free cash at that time, then the £44k you contributed in 2022-23 plus the £57k you contributed in 2023-24 will amount to less than 30% of the tax free cash.  (i.e. 44+57 < 30% x 336)

However if you retire in April 2024 but live off savings for a year and take your TFLS in April 2025, the 2022-23 contribution drops out of the analysis, so you will only need to take more than £190k tax free cash for the £57k 2023-4 contribution to be less than 30%.  (i.e. 57 < 30% x 190)

Sorry to dig up an old post but looking in to this with interest.

Isn’t the 30% contribution defined as “extra contributions”? 

So if the normal contribution was £24k in 2021-2022 and there was an additional £20k in 2022-2023 and an additional £33k in 2023-2024, the total amount of additional contributions was £53k.

So providing there are no additional contributions over £24k in the next three years and the TFLS is over £177k, no recycling has happened?

Yes it's supposed to be the "additional" contributions above what might have otherwise been expected.  On the HMRC website there are some examples but they don't cover everything and they still leave some ambiguity.

One of the examples implies that you have to add up all your contributions over the relevant 5 tax years, and then add up what they would have been if you didn't take the TFLS.  And then take 30% of that amount over the whole 5 years.

However another example seemed to imply that you would immediate breach the rules if you increased your contributions by 30% more than expected in the same year where you took the TFLS, which seems to contradict the other example where if you had a lot higher contributions in the prior 2 years (and potentially next 2 years) it would no longer be 30%.

There are also examples that imply that both inflation, and pay increases, and bonus patterns, can be taken into account.

Bottom line is that they would probably have to get a detailed explanation from you of your actions and why you did them in each year.