DB Pension/ DC Pension & Recycling

zagfles

Sarahspangles said:

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….

My understanding of the rules as described in the PTM is that it's nothing to do with the reason for taking the lump sum, it's to do with the reason for increasing the pension contributions. Look at the first bullet point. 

"the individual receives a pension commencement lump sum" 

Nothing whatsoever there about the reason/intention behind taking it. Just that it's received. 

The reason comes in the next bullet - the reason for increasing the pension conts. 

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK

Sarahspangles

zagfles said:

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….

My understanding of the rules as described in the PTM is that it's nothing to do with the reason for taking the lump sum, it's to do with the reason for increasing the pension contributions. Look at the first bullet point. 

"the individual receives a pension commencement lump sum" 

Nothing whatsoever there about the reason/intention behind taking it. Just that it's received. 

The reason comes in the next bullet - the reason for increasing the pension conts. 

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK

It’s possible I’m reading the next section wrong then, about pre-planning. https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133820. In my case, I have no choice about receiving the PCLS and the onus would be on HMRC to prove I’ve been intending all along to pay this into a new pension, rather than after the event realising it is surplus to my needs and that it makes sense to pay it into a pension.

We’ll never know how HMRC actually apply this, unless someone admits they’ve been investigated.