Paying more into pension and drawing tax free equivalent

greenery

Not sure if this would be a good idea or not. I am sure someone will give me the negatives!
I plan on working maybe 3 or 5 more years.
ATM I am paying quite a lot of my salary into my pension via salary sacrifice, leaving me enough to live on.
What if I was to pay more into my pension and withdraw the equivalate in a tax free lump sum each year so that I had enough to live on?
Not much thought gone into this, but it seems like a good idea

Dazed_and_C0nfused

greenery said:

Not sure if this would be a good idea or not. I am sure someone will give me the negatives!
I plan on working maybe 3 or 5 more years.
ATM I am paying quite a lot of my salary into my pension via salary sacrifice, leaving me enough to live on.
What if I was to pay more into my pension and withdraw the equivalate in a tax free lump sum each year so that I had enough to live on?
Not much thought gone into this, but it seems like a good idea

Well NMW rules will limit your options in using salary sacrifice.

Do you mean make separate relief at source contributions from your take home pay?

leosayer

This may or may not be in the scope of recycling rules which are explained here: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

There were a few threads in the past week discussing this.

greenery

Dazed_and_C0nfused said:

greenery said:

Not sure if this would be a good idea or not. I am sure someone will give me the negatives!
I plan on working maybe 3 or 5 more years.
ATM I am paying quite a lot of my salary into my pension via salary sacrifice, leaving me enough to live on.
What if I was to pay more into my pension and withdraw the equivalate in a tax free lump sum each year so that I had enough to live on?
Not much thought gone into this, but it seems like a good idea

Well NMW rules will limit your options in using salary sacrifice.

Do you mean make separate relief at source contributions from your take home pay?

I was thinking of going down to minimum wage

greenery

leosayer said:

This may or may not be in the scope of recycling rules which are explained here: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

There were a few threads in the past week discussing this.

Thanks. I didn't know about this. I did think there must be something preventing it. I will read up!

MallyGirl

greenery said:

Not sure if this would be a good idea or not. I am sure someone will give me the negatives!
I plan on working maybe 3 or 5 more years.
ATM I am paying quite a lot of my salary into my pension via salary sacrifice, leaving me enough to live on.
What if I was to pay more into my pension and withdraw the equivalate in a tax free lump sum each year so that I had enough to live on?
Not much thought gone into this, but it seems like a good idea

If you use up all your tax free amount this way then you would be paying more tax in retirement - potentially on higher amounts as there is hopefully growth. You would be preventing that tax free amount from growing in synch with the taxable bit.

greenery

MallyGirl said:

greenery said:

Not sure if this would be a good idea or not. I am sure someone will give me the negatives!
I plan on working maybe 3 or 5 more years.
ATM I am paying quite a lot of my salary into my pension via salary sacrifice, leaving me enough to live on.
What if I was to pay more into my pension and withdraw the equivalate in a tax free lump sum each year so that I had enough to live on?
Not much thought gone into this, but it seems like a good idea

If you use up all your tax free amount this way then you would be paying more tax in retirement - potentially on higher amounts as there is hopefully growth. You would be preventing that tax free amount from growing in synch with the taxable bit.

Yes, but surely not as much as would be saved via salary sacrifice (tax and NI)

Linton

The tax recycling rules are the same no matter in what order you put more into your pension and take the TFLS , if that is your underlying question. 

greenery

Linton said:

The tax recycling rules are the same no matter in what order you put more into your pension and take the TFLS , if that is your underlying question. 

That wasn't really my question.  I wasn't rally aware of the term tax recycling or what it meant until I just looked it up. 
I can pay an extra £500 into my pension each month to take me down to minimum wage through salary exchange but I need it to live on so it looks like I could " recycle" this smount

Pat38493

greenery said:

Linton said:

The tax recycling rules are the same no matter in what order you put more into your pension and take the TFLS , if that is your underlying question. 

That wasn't really my question.  I wasn't rally aware of the term tax recycling or what it meant until I just looked it up. 
I can pay an extra £500 into my pension each month to take me down to minimum wage through salary exchange but I need it to live on so it looks like I could " recycle" this smount

You can get away with doing some element of what you are describing but you need to be aware of those recycling rules and the guidelines on how HMRC would enforce them.

There are quirks in the rules - so for example if you wanted to do this, you might  be better off taking one large tax free lump sum rather than lots of small ones because one of the tests is whether your additional contributions “beyond what would normally be expected” is  more than 30% of the lump sum, and one of the examples implies that if you take multiple lump sums in the same period they would take the smallest one to measure it against (or something along those lines).  Unfortunately you can tie yourself up in knots trying to understand all the HMRC examples and how to apply them to your individual case.

There are plenty of people who run down their savings into their pension in the run up to retirement through their salary and then takes a tax free lump sum and they don’t seem to have any pushback from HMRC.  

Also some posters here have claimed that HMRC does not enforce these rules against individual taxpayers, but only against adviser firms doing it for all their clients or suchlike - impossible to prove this for sure though.  There is a bit in that tax manual guidelines that has been redacted by HMRC that we are not allowed to see, and I have wondered if that’s basically what it says.

greenery

Thankyou Pat38494. Very useful