Drawing down Defined Benefits pension and paying into Defined contribution scheme

Sleepless_Clueless

What are the rules / pitfalls in relation to starting to draw a defined benefit scheme whilst still continuing to work and paying into a defined contribution scheme ?
Due to upcoming changes to my pension scheme (which is already deferred) where the early repayment penalty is about to increase, I would like to access the impact of taking my DB pension early. Can I continue to work and effectively pay my DB pension into my DC scheme i.e. take advantage of the tax relief. Are there any barriers to prevent this ?

Marcon

Sleepless_Clueless said:

What are the rules / pitfalls in relation to starting to draw a defined benefit scheme whilst still continuing to work and paying into a defined contribution scheme ?
Due to upcoming changes to my pension scheme (which is already deferred) where the early repayment penalty is about to increase, I would like to access the impact of taking my DB pension early. Can I continue to work and effectively pay my DB pension into my DC scheme i.e. take advantage of the tax relief. Are there any barriers to prevent this ?

Yes, you can. There's always a lot of noise about 'recycling' but in practice this doesn't seem to impact many people, especially where they have a good explanation for what they are doing and they are not doing anything which suggests the tax free lump sum taken from one scheme is being paid to another. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

Sleepless_Clueless

Thanks Marcon - this would not be a lump sum, it would be taking the monthly payment and re-investing into DC scheme. Effectively re-covering the tax (when paying into pension) they have taken from the payment by taking at source. Looks like HMRC doc is focused on people taking their 25% tax free lump sum and re-cycling so hopefully not relevant in my example.

Brie

This assumes you have reached at least the minimum age to take the DB pension and are not bothered about decreased payouts as a result.  
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And presumably you are ensuring that nothing ticks you over into a higher tax bracket.

Sleepless_Clueless

Hi Brie, yes above min age but would be taxed at the additional rate. However my understanding was that this could be claimed back via tax return each year 

Albermarle

Sleepless_Clueless said:

Thanks Marcon - this would not be a lump sum, it would be taking the monthly payment and re-investing into DC scheme. Effectively re-covering the tax (when paying into pension) they have taken from the payment by taking at source. Looks like HMRC doc is focused on people taking their 25% tax free lump sum and re-cycling so hopefully not relevant in my example.

Just be clear that income from a pension is not eligible for tax relief when added to a new pension.

However as long as you are still earning then your employment income is eligible for tax relief. Where your pension contributions actually come from is not relevant as long as your employment income is large enough to get the tax relief.

michaels

Am I right in thinking that a DB pension never triggers the MPAA?

FIREDreamer

michaels said:

Am I right in thinking that a DB pension never triggers the MPAA?

Correct!

Edit: nor does a lifetime annuity.

Nor does a small pot under £10,000 and you can take 3 of those.

westv

I did similar when my PPF pension started. I was unable to defer it and would have gone over the 40% tax band so increased the amount I paid via sal sac.

DE_612183

Albermarle said:

Sleepless_Clueless said:

Thanks Marcon - this would not be a lump sum, it would be taking the monthly payment and re-investing into DC scheme. Effectively re-covering the tax (when paying into pension) they have taken from the payment by taking at source. Looks like HMRC doc is focused on people taking their 25% tax free lump sum and re-cycling so hopefully not relevant in my example.

Just be clear that income from a pension is not eligible for tax relief when added to a new pension.

However as long as you are still earning then your employment income is eligible for tax relief. Where your pension contributions actually come from is not relevant as long as your employment income is large enough to get the tax relief.

Surely the first £2880 that you pay into a pension you still get the tax relief on?

Albermarle

DE_612183 said:

Albermarle said:

Sleepless_Clueless said:

Thanks Marcon - this would not be a lump sum, it would be taking the monthly payment and re-investing into DC scheme. Effectively re-covering the tax (when paying into pension) they have taken from the payment by taking at source. Looks like HMRC doc is focused on people taking their 25% tax free lump sum and re-cycling so hopefully not relevant in my example.

Just be clear that income from a pension is not eligible for tax relief when added to a new pension.

However as long as you are still earning then your employment income is eligible for tax relief. Where your pension contributions actually come from is not relevant as long as your employment income is large enough to get the tax relief.

Surely the first £2880 that you pay into a pension you still get the tax relief on?

Yes but the OP seems to have a good salary, so not really relevant.
above min age but would be taxed at the additional rate. However my understanding was that this could be claimed back via tax return each year 

I was just clarifying the point ( maybe for other readers) that DB pension income in itself is not eligible for tax relief.