DB Pension/ DC Pension & Recycling

GallacPT

Hi everyone, new here and looking for advice. 

Recently taken a DB Pension from previous employer including 25% tax free .
intend to continue working and increase my salary sacrifice contribution into my current employers DC scheme to offset the DB pension monthly payment .

i know MPAA doesn’t effect DB schemes but what I’m unsure off is would this be seen as recycling? 

I’m not putting any of the tax free lump sum into the DC scheme I’m only trying to save more for when I actually retire.

advice grateful received .
thanks

GunJack

That is not recycling, and I'll be doing the same thing when my first dB comes due. No issue with that at all 🙂

Cobbler_tone

I thought about doing this with a deferred DB scheme (I could get £100k lump sum and £16k per annum DB now) but decided to leave it alone until I retire in 3-4 years. The main reason is that the DB scheme will continue to grow, including the spousal protection. I am able to afford to contribute 25% via SS to my DC (37% total contributions) and still live comfortably. 
My understanding is that whacking a tax free lump sum in would be recycling, so you should be fine.

NedS

GallacPT said:

Hi everyone, new here and looking for advice. 

Recently taken a DB Pension from previous employer including 25% tax free .
intend to continue working and increase my salary sacrifice contribution into my current employers DC scheme to offset the DB pension monthly payment .

i know MPAA doesn’t effect DB schemes but what I’m unsure off is would this be seen as recycling? 

I’m not putting any of the tax free lump sum into the DC scheme I’m only trying to save more for when I actually retire.

advice grateful received .
thanks

I think the key here is that you are not actually increasing your contributions to the pension. It's salary sacrifice, so it is the employer who is making the increased contribution, not you. Happy to be wrong if others know better.

GunJack

It's the fact you're not using the pcls to up your contribution, you're using the pension income - that's the distinction that makes it not recycling

zagfles

NedS said:

GallacPT said:

Hi everyone, new here and looking for advice. 

Recently taken a DB Pension from previous employer including 25% tax free .
intend to continue working and increase my salary sacrifice contribution into my current employers DC scheme to offset the DB pension monthly payment .

i know MPAA doesn’t effect DB schemes but what I’m unsure off is would this be seen as recycling? 

I’m not putting any of the tax free lump sum into the DC scheme I’m only trying to save more for when I actually retire.

advice grateful received .
thanks

I think the key here is that you are not actually increasing your contributions to the pension. It's salary sacrifice, so it is the employer who is making the increased contribution, not you. Happy to be wrong if others know better.

It's irrelavent whether it's sal sac (employer) contributions or not. See PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK third bullet

NedS

zagfles said:

NedS said:

GallacPT said:

Hi everyone, new here and looking for advice. 

Recently taken a DB Pension from previous employer including 25% tax free .
intend to continue working and increase my salary sacrifice contribution into my current employers DC scheme to offset the DB pension monthly payment .

i know MPAA doesn’t effect DB schemes but what I’m unsure off is would this be seen as recycling? 

I’m not putting any of the tax free lump sum into the DC scheme I’m only trying to save more for when I actually retire.

advice grateful received .
thanks

I think the key here is that you are not actually increasing your contributions to the pension. It's salary sacrifice, so it is the employer who is making the increased contribution, not you. Happy to be wrong if others know better.

It's irrelavent whether it's sal sac (employer) contributions or not. See PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK third bullet

Thank you, I stand corrected

Cobbler_tone

I think if you don't pay your lump sum in and (to air on the side of caution) keep your pay above minimum wage, then it wouldn't be deemed as recycling if purely increasing your contributions via salary sacrifice. Nearly all of the guidance revolves around the lump sum. You can even pay the lump sum in at a later date if it wasn't pre-planned.

Not forgetting that any onus is on the HMRC to prove recycling was planned.

GunJack

Yes, I know that, you are subbing the pension income for lower"earnings" by way of higher sal sac, but to most people they'd see it as upping their contributions 😏

Plus, it'll show on a payslip as an increase to the employee's contribution,..

Cobbler_tone

GunJack said:

Yes, I know that, you are subbing the pension income for lower"earnings" by way of higher sal sac, but to most people they'd see it as upping their contributions 😏

Plus, it'll show on a payslip as an increase to the employee's contribution,..

"Recycling of a pension commencement lump sum involves using that lump sum as the means to increase contributions significantly to a registered pension scheme."

Regardless of terminology they 'could' spend the lump sum on day 1, to pay off a mortgage...or however they see fit. They could also squirrel it away. If the lump sum isn't a factor in raising contributions then it isn't recycling. If it was the guidance would say "accessing a DB pension to enable increased contributions to a DC is classed as recycling"

It is definitely something I considered but the numbers didn't work out for me and I could afford to up my contributions and keep the future DB value invested.

pensionpickle

I'm in a very similar position to you OP, planning on carrying  on working my my current role whilst taking a small previous DB pension in 2025 - my understanding from my DB pension provider's paperwork is that as long as any increase in payments into my current scheme  (such as CS added pension or AVCs?) don't exceed 30% of the old scheme tax free lump sum in total, then that's not recycling?  Hope my understanding is correct!