Pension recycling calculation for soon to be retiree

Smugdog

Help required with Pensions recycling rules and allowances.

22/23  £11,695

23/24  £  8,307

24/25  £  7,430

25/26  £  8,533             £77,575 Tax Free Lump Sum taken from Defined Benefit Pension

26/27                                  to take early retirement in April 26

27/28

So, Pension payments for previous 2 years from the Lump sum year were decreasing.
The max recycling allowed I calculate is £23,272 (30%).
I see an increase of £1,100 in 25/26.... so does that mean in retirement, I could open a SIPP and add £11000 per year 26/27 and 27/28 and still be withing recycling rules / limits?

Many thanks for being gentle with a newbie ... P

Marcon

Smugdog said:

Help required with Pensions recycling rules and allowances.

22/23  £11,695

23/24  £  8,307

24/25  £  7,430

25/26  £  8,533             £77,575 Tax Free Lump Sum taken from Defined Benefit Pension

26/27                                  to take early retirement in April 26

27/28

So, Pension payments for previous 2 years from the Lump sum year were decreasing.
The max recycling allowed I calculate is £23,272 (30%).
I see an increase of £1,100 in 25/26.... so does that mean in retirement, I could open a SIPP and add £11000 per year 26/27 and 27/28 and still be withing recycling rules / limits?

Many thanks for being gentle with a newbie ... P

Before you worry about recycling, if you're retiring in April 2026, will you have sufficient earned income to cover contributions at this level?

Smugdog

I have sufficient income from the defined benefit part of the pension... and savings... So, is there a ratio of income to allowable pension contributions is a tax year, even in retirement?

dharm999

AIUI, as pensions and savings don’t count as pensionable earnings, then you won’t get tax relief on the contributions to the SIPP.  

Dazed_and_C0nfused

Smugdog said:

I have sufficient income from the defined benefit part of the pension... and savings... So, is there a ratio of income to allowable pension contributions is a tax year, even in retirement?

If you don't have any earnings which are relevant for pension contribution purposes then you will be limited to a gross contribution of £3,600.  You pay £2,880 and basic rate tax relief of £720 will be added by the pension company.

Smugdog

Ok, thanks for that both...
So pension income cannot be included in the SIPP limits. but £3600 (£2800) is allowed. I suppose for both myself and spouse (who has finished work for a few years), could I just give her £2800 per year also to create a SIPP and well as same for me?
Also, I've not maxed out previous years pension contributions... could I use some of the allowable recycled amount to use up this allowance?

SVaz

You can put in your whole gross 25-26 earnings minus any contributions already made.

e,g:  if you earn £50k in this tax year,  you contributed £10k gross -  leaving £40k available.

You can contribute a further £32000 net and it will get grossed to to £40k with tax relief.   This all assumes relief at source,  not salary sacrifice or use of any 40% tax relief . 

MallyGirl

You cannot get tax relief on gross contributions higher than your salary. Effectively that caps what you can contribute to DIY SIPPs as they assume the contribution is all eligible for tax relief. You can only make use of previous years' unused allowances once you have used all of the current year's £60k (for which you must have earned £60k of earned income which does not include pension income)

SVaz

As for previous years,  unless you earn over £60k and will contribute £60k this year,  it’s a no go I’m afraid.

QrizB

Smugdog said:

I suppose for both myself and spouse (who has finished work for a few years), could I just give her £2800 per year also to create a SIPP and well as same for me?

Yes.

Smugdog said:

Also, I've not maxed out previous years pension contributions... could I use some of the allowable recycled amount to use up this allowance?

No, for the reasons stated above.

MeteredOut

Smugdog said:

Ok, thanks for that both...
So pension income cannot be included in the SIPP limits. but £3600 (£2800) is allowed. I suppose for both myself and spouse (who has finished work for a few years), could I just give her £2800 per year also to create a SIPP and well as same for me?
Also, I've not maxed out previous years pension contributions... could I use some of the allowable recycled amount to use up this allowance?

Small note - its £2880, not £2800, to get the £3600 - every little helps!