Not pension recycling?

Baggy2000

Taken a DB tax-free sum and monthly income from previous employer and still working so I could significantly increase my DC contributions via my employer's salary sacrifice scheme. Would that be enough to avoid being accused of pension recycling as it from income and not any tax-free lump sum. Also presuming MPAA doesn't apply as now drawing my DB pension?

Pat38493

You will struggle to get completely definitive answers about pension recycling as HMRC have issued guidelines but have never elaborated on various questions and details and the guidelines have vague terms like "normal retirement planning" is ok.

If you do this, I would make sure to keep a documented trail that the lump sum had been earmarked for other purposes - (pay off mortgage or suchlike), and only increase your pension contributions by the amount of the actual DB income. (technically you could also put 30% of the lump sum back in as well according to their guidelines but thy are pretty complex - you can look them up on HMRC website).

It was also recently posted by a regular poster on another thread that "HMRC have never pursued an individual taxpayer for pension recycling" as it's intended to prevent marketed recycling schemes.

For what it's worth, I would be comfortable doing this but I doubt you'll find any IFA who will give you a cast iron guarantee.

QrizB

Baggy2000 said:

Taken a DB tax-free sum and monthly income from previous employer and still working so I could significantly increase my DC contributions via my employer's salary sacrifice scheme. Would that be enough to avoid being accused of pension recycling as it from income and not any tax-free lump sum. Also presuming MPAA doesn't apply as now drawing my DB pension?

In previous threads some regular posters have stated that making additional DC contributions from DB income isn't recycling.

Taking a DB pension does not invoke the MPAA, AFAIK.

Somebody

Leaving aside the DB benefits, as you're paying your earned income into your DC pension you're merely maximising allowable contributions, so to my mind it wouldn't be considered as recycling. 

Albermarle

Somebody said:

Leaving aside the DB benefits, as you're paying your earned income into your DC pension you're merely maximising allowable contributions, so to my mind it wouldn't be considered as recycling. 

Although you could argue that having the lump sum means you can then afford to put higher contributions in the DC pension.

Taking a DB pension does not invoke the MPAA, AFAIK.

That is correct.

Baggy2000

Thanks for your feedback everyone 

jamesd

The only pension recycling rules relate to the tax free lump sum. There are no restrictions on recycling pension income.

A key requirement for the lump sum recycling rules to have any effect is that HMRC must prove that you planned the recycling before you received the lump sum. It's plain that you didn't.

The MPAA only applies to taking "flexible benefits". That excludes defined benefit and annuity income as well as the small pot rule.

WYSPECIAL

I did similar. I needed to access a lump sum to pay off a Mesher Order and had always planned to access one of my pensions to do this.

To avoid restricting what I could pay into a DC scheme Andy because the amount of income I would get by taking the DB pension early was enough for my needs I took that early. I cleared the mortgage with part of the lump sum and kept the remainder until I was able to pay off the mortgage without an early redemption penalty.

The DB income which wasn’t needed at the time , plus an unplanned job change, meant that I was able to increase what I paid into DC..

HMRC have never asked any questions but I always just kept evidence of what I did so if anyone ever does ask then my story is that the plan was always to use the lump sum for the Mesher and mortgage.