DB Pension/ DC Pension & Recycling

GallacPT

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 .

Thank you and the other posters for replying. I’ve read through the HMRC post you kindly provided and I’m still unsure if increasing my salary sacrifice contribution to offset my new DB monthly payment is recycling or not . 

I’ve approached a tax advisor by email for a written statement of compliance but heard nothing back as of yet . 

I’d be grateful for your opinion- is my plan to offset my DB monthly pension payment by increasing my salary sacrifice contribution recycling ?

Thank you

GallacPT

Thank you all for responding to my thread . 

GallacPT

GunJack said:

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

So by me substituting the amount I take home each month aka reduced salary (by increasing salary sacrifice)+ db pension payment . So therefore offsetting to increase DC pension for future use in retirement and not using any of my lump sum to increase my DC pension I’m not recycling because I’m actually spending my DB monthly payment in lieu of salary. 

Is that correct? 

Thank you 

IvanOpinion

If the amount of additional contributions is less than 30% of the tax free cash you have taken then I believe it is not considered as recycling.

GunJack

I've been trying to look a bit deeper into this, and it appears that terminology may be an important distinction.....

Taking a tax free lump sum of 25% from a DC does seem to apply to the recycling rules,  but a PCLS from a DB may or may not be covered....could any of the IFAs on here clarify this? If a DB PCLS could come under recycling then it could change my plans....

Reading through the manual linked to earlier would appear that those of us with DB income starting can increase salsac by the level of the DB income irrespective of the 30% rule as it's from income and not the PCLS...

Albermarle

GunJack said:

I've been trying to look a bit deeper into this, and it appears that terminology may be an important distinction.....

Taking a tax free lump sum of 25% from a DC does seem to apply to the recycling rules,  but a PCLS from a DB may or may not be covered....could any of the IFAs on here clarify this? If a DB PCLS could come under recycling then it could change my plans....

Reading through the manual linked to earlier would appear that those of us with DB income starting can increase salsac by the level of the DB income irrespective of the 30% rule as it's from income and not the PCLS...

I have no idea of the exact HMRC rules, but maybe they could argue that it is not possible to be clear whether your increased DC contributions are coming from the DB income, or from the PCLS?

moedeeb

These re cycling questions keep coming up and as far as.I know no contributor to this forum has ever been penalised for recycling their tax free pension payment.  I received a DB pension when I was 50 and added the whole of the monthly income to my work DC pension and spent the lump sum on paying of my mortgage.  If ever I was investigated I would argue that the lump sum was used for a legitimate pre planned purpose and that my increased contributions were from pension income. It all seems so nuanced and complicated that I can see why no one ( as far as we are aware) has actually been penalised in the last 10 years or so. 

zagfles

GunJack said:

I've been trying to look a bit deeper into this, and it appears that terminology may be an important distinction.....

Taking a tax free lump sum of 25% from a DC does seem to apply to the recycling rules,  but a PCLS from a DB may or may not be covered....could any of the IFAs on here clarify this? If a DB PCLS could come under recycling then it could change my plans....

Reading through the manual linked to earlier would appear that those of us with DB income starting can increase salsac by the level of the DB income irrespective of the 30% rule as it's from income and not the PCLS...

What makes you think PCLS from DB and DC are treated differently for recycling rules? 

Sarahspangles

zagfles said:

GunJack said:

I've been trying to look a bit deeper into this, and it appears that terminology may be an important distinction.....

Taking a tax free lump sum of 25% from a DC does seem to apply to the recycling rules,  but a PCLS from a DB may or may not be covered....could any of the IFAs on here clarify this? If a DB PCLS could come under recycling then it could change my plans....

Reading through the manual linked to earlier would appear that those of us with DB income starting can increase salsac by the level of the DB income irrespective of the 30% rule as it's from income and not the PCLS...

What makes you think PCLS from DB and DC are treated differently for recycling rules? 

I’ve also read somewhere that a PCLS from an DB may be looked at differently if it’s not optional. For example I have a DB payable at 60 where the lump sum is baked into the pension. If I happened to be working that year* it would be inconvenient to have to stop paying as much as possible into a SIPP just to avoid an impression of recycling. I’m not actively taking the PCLS with the intention of recycling it - one of the tests is intention.

* I’m not planning to be working that year. Just thought I’d get that in there, apparently I mention my impending retirement quite a bit at work….

Pat38493

GunJack said:

I've been trying to look a bit deeper into this, and it appears that terminology may be an important distinction.....

Taking a tax free lump sum of 25% from a DC does seem to apply to the recycling rules,  but a PCLS from a DB may or may not be covered....could any of the IFAs on here clarify this? If a DB PCLS could come under recycling then it could change my plans....

Reading through the manual linked to earlier would appear that those of us with DB income starting can increase salsac by the level of the DB income irrespective of the 30% rule as it's from income and not the PCLS...

I asked this question in the past and I was told that HMRC is just using the term PCLS to refer to any tax free cash withdrawal coming from a pension.  As someone mentioned above, if the PCLS was mandatory and you had no choice but to take it, this might create additional arguments.

As others have stated there is no recycling issue with putting your taxable DB pension income into your pension as it is not tax free money.

(I suppose it could come into question if for example you went part time working at the same time as doing this, and your part time earnings was insufficient to cover your living expenses, but up to now it doesn't seem like HMRC investigates these type of things for indivdual tax payers, probably because they would have to show that it was recycling and this would get quite time consuming for them to prove).