Taking 25% from one pension pot to top up another

rca779

I have several different pensions, one is a closed fund that is worth approximately 75k. 

What I was thinking I could do is take my 25% of this and use that £18k to top up my current employers pension and therefore claim 40% tax relief on this.

This seems far too simple and I am sure that there must be rules against this as otherwise everyone would be doing it. Just not sure where to find the rules and to understand them. 

artyboy

Google "pension recycling"

rca779

Thanks, thought it was too simple to be true :-)

Marcon

rca779 said:

I have several different pensions, one is a closed fund that is worth approximately 75k. 

What I was thinking I could do is take my 25% of this and use that £18k to top up my current employers pension and therefore claim 40% tax relief on this.

This seems far too simple and I am sure that there must be rules against this as otherwise everyone would be doing it. Just not sure where to find the rules and to understand them. 

https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/pension-recycling-what-is-it-and-what-are-the-rules

Scrounger

rca779 said:

I have several different pensions, one is a closed fund that is worth approximately 75k. 

What I was thinking I could do is take my 25% of this and use that £18k to top up my current employers pension and therefore claim 40% tax relief on this.

This seems far too simple and I am sure that there must be rules against this as otherwise everyone would be doing it. Just not sure where to find the rules and to understand them. 

You could do that but over a 3-year period:

Years 1 and 2: Drawdown £30k from the closed fund and recycle the 25% tax free lump sum (£7.5K) into your works pension.

Year 3: Drawdown the remaining funds (~£15k) from the closed fund and recycle 25% tax free lump sum (~£3.75k) into work pension.

Job done (and no recycling rules broken).

In fact, I did something very similar myself. 


Scrounger

GenX0212

Scrounger said:

rca779 said:

I have several different pensions, one is a closed fund that is worth approximately 75k. 

What I was thinking I could do is take my 25% of this and use that £18k to top up my current employers pension and therefore claim 40% tax relief on this.

This seems far too simple and I am sure that there must be rules against this as otherwise everyone would be doing it. Just not sure where to find the rules and to understand them. 

You could do that but over a 3-year period:

Years 1 and 2: Drawdown £30k from the closed fund and recycle the 25% tax free lump sum (£7.5K) into your works pension.

Year 3: Drawdown the remaining funds (~£15k) from the closed fund and recycle 25% tax free lump sum (~£3.75k) into work pension.

Job done (and no recycling rules broken).

In fact, I did something very similar myself. 


Scrounger

How is that not recycling? 

artyboy

GenX0212 said:

Scrounger said:

rca779 said:

I have several different pensions, one is a closed fund that is worth approximately 75k. 

What I was thinking I could do is take my 25% of this and use that £18k to top up my current employers pension and therefore claim 40% tax relief on this.

This seems far too simple and I am sure that there must be rules against this as otherwise everyone would be doing it. Just not sure where to find the rules and to understand them. 

You could do that but over a 3-year period:

Years 1 and 2: Drawdown £30k from the closed fund and recycle the 25% tax free lump sum (£7.5K) into your works pension.

Year 3: Drawdown the remaining funds (~£15k) from the closed fund and recycle 25% tax free lump sum (~£3.75k) into work pension.

Job done (and no recycling rules broken).

In fact, I did something very similar myself. 


Scrounger

How is that not recycling? 

Weeeeeelllllllll.... technically if you just happened to increase the amount of your salary that was paid into your pension, and then used the money you took out of you pension to bridge the gap in your salary for living expenses, that isn't actually recycling. Sort of.

Point being it's virtually impossible to prove, unless someone literally takes the pension money they withdrew and then put it straight into another pension. That would be really stupid because it's an easy audit trail for HMRC to follow.

It's a bit like parents giving money to their kids grandparents, to then put into savings accounts for the kids, so as to get around the issue with interest over £100 getting taxed.

Or if I'm going to be really direct, it's not unlike the 'layering' stage of the money laundering cycle...

Scrounger

GenX0212 said:

Scrounger said:

rca779 said:

I have several different pensions, one is a closed fund that is worth approximately 75k. 

What I was thinking I could do is take my 25% of this and use that £18k to top up my current employers pension and therefore claim 40% tax relief on this.

This seems far too simple and I am sure that there must be rules against this as otherwise everyone would be doing it. Just not sure where to find the rules and to understand them. 

You could do that but over a 3-year period:

Years 1 and 2: Drawdown £30k from the closed fund and recycle the 25% tax free lump sum (£7.5K) into your works pension.

Year 3: Drawdown the remaining funds (~£15k) from the closed fund and recycle 25% tax free lump sum (~£3.75k) into work pension.

Job done (and no recycling rules broken).

In fact, I did something very similar myself. 


Scrounger

How is that not recycling? 

It is 'recycling', (but fortunately permitted under hmrc rules).

Second line of the recycling flowchart:-

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/


One of the benefits to an individual of recycling is that it allows further tax-free cash to be paid. The income taken from the pension plan is re-invested back into one or more pension plans and tax relief is applied. The individual will continue to benefit from tax efficient growth and will have access to a further tax-free cash sum at the point they take benefits from the plan.


Scrounger

silverchoice

Is it possible to put all your savings into your SIPP a month before your 55th birthday get the tax relief then withdraw 25% of your pension pot on your 55th birthday?

Dazed_and_C0nfused

silverchoice said:

Is it possible to put all your savings into your SIPP a month before your 55th birthday get the tax relief then withdraw 25% of your pension pot on your 55th birthday?

For some people it will be yes.

Although it sometimes takes longer than a month for the tax relief to arrive.

Aretnap

silverchoice said:

Is it possible to put all your savings into your SIPP a month before your 55th birthday get the tax relief then withdraw 25% of your pension pot on your 55th birthday?

Your contributions each tax year are limited by your salary for that year, so it depends on how much you earn and how much you have saved.

But I'm principle yes, if your savings (plus tax relief) are less than your annual salary.