Sanity check on pension recycling rules (mixed DB/DC scheme: USS)

NickBFS

jamesd said:

NickBFS said:

Besides, the DC portion of the USS scheme does not allow flexi drawdown (they only allow UPFLS). I would therefore have to arrange a transfer of my DC pot to a SIPP and pay SIPP charges

That may also mean becoming subject to higher rate income tax because of that rule and avoiding that can be done with a temporarily higher pension contribution, without PCLS recycling intent being involved, both as the 25% tax free in UFPLS isn't a PCLS and just because it's sensible and ordinary retirement planning to try to avoid a higher tax rate.

I am not entirely sure that I follow what you mean. If I were to take a UFPLS, that would trigger the MPAA, which would defeat the purpose as the operation given the 10K limits on contribution under the MPAA. The only way to make this work, I think (and what I meant in that post), would be to keep it within a pension wrapper but transfer it (in specie or value) from the USS DC pot to a SIPP provider that allows flexi drawdown and only then drawdown a TFLS from the SIPP rather than a UFPLS. This TFLS, however, would be, at least theoretically, subject to pension recycling rules, I would have thought.

jamesd

The tax free lump sum from the SIPP would be a PCLS.

It's a quirk of the rules that the 25% tax free in UFPLS isn't a PCLS and the recycling rules relate only to PCLS payments.

The quirk is logical because taking the UFPLS triggers the MPAA from that date and that is an alternative severe restriction on recycling.

So in theory you could make pension contributions in your last year of work to use all of your pay within basic rate and then withdraw the UFPLS that you made the higher pension contribution to cover, all without any possible application of the recycling rules. The MPAA applies from the withdrawing date and you're free to use the AA and carry-forward before that.

NickBFS

jamesd said:

The tax free lump sum from the SIPP would be a PCLS.

It's a quirk of the rules that the 25% tax free in UFPLS isn't a PCLS and the recycling rules relate only to PCLS payments.

The quirk is logical because taking the UFPLS triggers the MPAA from that date and that is an alternative severe restriction on recycling.

So in theory you could make pension contributions in your last year of work to use all of your pay within basic rate and then withdraw the UFPLS that you made the higher pension contribution to cover, all without any possible application of the recycling rules. The MPAA applies from the withdrawing date and you're free to use the AA and carry-forward before that.

Got it. Thanks for that suggestion. Can't use it in relation to the mortgage payoff since it will be too early but useful as a potential small add-on optimisation in the final employment tax year. 

Pat38493

jamesd said:

HMRC gets reports of pension contributions so they will have a good idea about salary sacrifice, which shows up as company rather than individual contributions.

But do they systematically collate this information by individual taxpayer?  

I would have thought that if they did this, they would make it visible on gov.uk just like our tax paid and so on (actually it would be quite useful if you are paying into multiple pensions).