This is not pension recycling, is it?

MetaPhysical

I plan to earn about £56k this year and I'll be retiring in February 26.  I have saved about £10k into my DC via SalSac for this tax year.  In previous tax years I have maxed out the tax relief allowance via same way.

I want to take a £30k UFPLS and a £20k TFC lump sum at the start of next tax year after I've retired.  Is there anything I should be aware of if I were to pay into my pension £13k of my own cash from my savings this tax year to get the government contribution even though I am doing a withdrawal (my first one) early in next tax year?  This wouldn't be pension recycling would it?  After all, they are two separate tax years and making such a contribution is entirely normal.

Thank you in advance! 

Marcon

MetaPhysical said:

I plan to earn about £56k this year and I'll be retiring in February 26.  I have saved about £10k into my DC via SalSac for this tax year.  In previous tax years I have maxed out the tax relief allowance via same way.

I want to take a £30k UFPLS and a £20k TFC lump sum at the start of next tax year after I've retired.  Is there anything I should be aware of if I were to pay into my pension £13k of my own cash from my savings this tax year to get the government contribution even though I am doing a withdrawal (my first one) early in next tax year?  This wouldn't be pension recycling would it?  After all, they are two separate tax years and making such a contribution is entirely normal.

Thank you in advance! 

Here are the rules: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

If you read the relevant section you should have your answer:

Circumstances where the recycling rule does not apply

ClashCityRocker1

Can you divide the £13K by number of months left before retirement and make that amount as monthly contribution? I only suggest it because somebody of this parish suggested HMRC are only interested in lump sums where recycling is concerned.

Otherwise my understanding is that following your planned retirement savings route is fine as long as you are not planning to recycle tax free cash into a pension.. So if you you were planning to maximise your contribution as per previous years then there is no change to your plan and no such recycling plan.

But I am of course not HMRC!

Marcon

ClashCityRocker1 said:

Can you divide the £13K by number of months left before retirement and make that amount as monthly contribution? I only suggest it because somebody of this parish suggested HMRC are only interested in lump sums where recycling is concerned.

I wouldn't rely on that one - HMRC look at total contributions in the tax year, not whether they are paid in one go or at intervals.

westv

OP there is no hint of recycling. You are putting money in to then take it out again - not the other way round.

Marcon

westv said:

OP there is no hint of recycling. You are putting money in to then take it out again - not the other way round.

You've overlooked the fact that increased contributions prior to receipt of a lump sum can be taken into account:

What is the cumulative basis on which the significant increase of contributions is based?

An individual planning to increase contributions significantly to a registered pension scheme when taking a pension commencement lump sum does not avoid the ‘significant increase’ test by increasing contributions piecemeal or gradually over time. It does so by providing for contributions to be measured over a set period of time in determining whether or not there has been a significant increase in contributions.

The period of time is:

• the tax year in which an individual takes a pension commencement lump sum with the intention of using it to make significantly increased contributions to a registered pension scheme
• the 2 tax years immediately preceding the tax year in which the individual took the lump sum
• the 2 tax years immediately following the tax year in which the individual took the lump sum.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133830

westv

Marcon said:

westv said:

OP there is no hint of recycling. You are putting money in to then take it out again - not the other way round.

You've overlooked the fact that increased contributions prior to receipt of a lump sum can be taken into account:

What is the cumulative basis on which the significant increase of contributions is based?

An individual planning to increase contributions significantly to a registered pension scheme when taking a pension commencement lump sum does not avoid the ‘significant increase’ test by increasing contributions piecemeal or gradually over time. It does so by providing for contributions to be measured over a set period of time in determining whether or not there has been a significant increase in contributions.

The period of time is:

• the tax year in which an individual takes a pension commencement lump sum with the intention of using it to make significantly increased contributions to a registered pension scheme
• the 2 tax years immediately preceding the tax year in which the individual took the lump sum
• the 2 tax years immediately following the tax year in which the individual took the lump sum.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133830

That can't be relevant otherwise nobody would stuff the pension with contributions in the year or years before retirement.
And the amounts being discussed are peanuts in the grand scheme of things.

MetaPhysical

I might keep the total amount I add limited to the £7500 limit then to avoid any potential trigger.

Marcon

westv said:

Marcon said:

westv said:

OP there is no hint of recycling. You are putting money in to then take it out again - not the other way round.

You've overlooked the fact that increased contributions prior to receipt of a lump sum can be taken into account:

What is the cumulative basis on which the significant increase of contributions is based?

An individual planning to increase contributions significantly to a registered pension scheme when taking a pension commencement lump sum does not avoid the ‘significant increase’ test by increasing contributions piecemeal or gradually over time. It does so by providing for contributions to be measured over a set period of time in determining whether or not there has been a significant increase in contributions.

The period of time is:

• the tax year in which an individual takes a pension commencement lump sum with the intention of using it to make significantly increased contributions to a registered pension scheme
• the 2 tax years immediately preceding the tax year in which the individual took the lump sum
• the 2 tax years immediately following the tax year in which the individual took the lump sum.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133830

That can't be relevant otherwise nobody would stuff the pension with contributions in the year or years before retirement.

Why do you think HMRC's guidance can safely be ignored? It's relevant but needs to be taken in the context of other requirements.

ClashCityRocker1

MetaPhysical said:

I might keep the total amount I add limited to the £7500 limit then to avoid any potential trigger.

I think the £7500 limit is a limit to the tax free lump sum, not a contribution limit.

westv

Marcon said:

westv said:

Marcon said:

westv said:

OP there is no hint of recycling. You are putting money in to then take it out again - not the other way round.

You've overlooked the fact that increased contributions prior to receipt of a lump sum can be taken into account:

What is the cumulative basis on which the significant increase of contributions is based?

An individual planning to increase contributions significantly to a registered pension scheme when taking a pension commencement lump sum does not avoid the ‘significant increase’ test by increasing contributions piecemeal or gradually over time. It does so by providing for contributions to be measured over a set period of time in determining whether or not there has been a significant increase in contributions.

The period of time is:

• the tax year in which an individual takes a pension commencement lump sum with the intention of using it to make significantly increased contributions to a registered pension scheme
• the 2 tax years immediately preceding the tax year in which the individual took the lump sum
• the 2 tax years immediately following the tax year in which the individual took the lump sum.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133830

That can't be relevant otherwise nobody would stuff the pension with contributions in the year or years before retirement.

Why do you think HMRC's guidance can safely be ignored? It's relevant but needs to be taken in the context of other requirements.

If you say so. And I will repeat many fill their pots in the year or few years before retirement without issue