Paying PILON into pension (and recycling)

JDK1971

Hi 

I am shortly expecting to receive a pilon payment of circa £27k.  I have been told by my employer that this can’t be salary sacrificed into my workplace DC pension.

If I take the net PILON amount and pay it into my SIPP pension this tax year ( plus the automatic uplift from HL), and then take a lump sum from my SIPP next tax year, am I in any danger of flouting recycling rules?  

I would also expect a 20% tax rebate as a higher rate tax payer from this pension contribution triggered by self assessment after April - not sure if that’s relevant at all.

Marcon

JDK1971 said:

Hi 

I am shortly expecting to receive a pilon payment of circa £27k.  I have been told by my employer that this can’t be salary sacrificed into my workplace DC pension.

If I take the net PILON amount and pay it into my SIPP pension this tax year ( plus the automatic uplift from HL), and then take a lump sum from my SIPP next tax year, am I in any danger of flouting recycling rules?  

I would also expect a 20% tax rebate as a higher rate tax payer from this pension contribution triggered by self assessment after April - not sure if that’s relevant at all.

Not enough information to comment helpfully, but if you read https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/pension-recycling-what-is-it-and-what-are-the-rules that should enable you to work out whether you are risking flouting the rules.

kermchem

JDK1971 said:

Hi 

I am shortly expecting to receive a pilon payment of circa £27k.  I have been told by my employer that this can’t be salary sacrificed into my workplace DC pension.

If I take the net PILON amount and pay it into my SIPP pension this tax year ( plus the automatic uplift from HL), and then take a lump sum from my SIPP next tax year, am I in any danger of flouting recycling rules?  

I would also expect a 20% tax rebate as a higher rate tax payer from this pension contribution triggered by self assessment after April - not sure if that’s relevant at all.

Read the HMRC rules at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

To count as recycling the ability to pay into your pension must arise because you are receiving or will receive a pension lump sum (second bullet point). Unless you have some secret deal where employer paying PILON is being funded by your pension lump sum you are safe.   

Marcon

kermchem said:

JDK1971 said:

Hi 

I am shortly expecting to receive a pilon payment of circa £27k.  I have been told by my employer that this can’t be salary sacrificed into my workplace DC pension.

If I take the net PILON amount and pay it into my SIPP pension this tax year ( plus the automatic uplift from HL), and then take a lump sum from my SIPP next tax year, am I in any danger of flouting recycling rules?  

I would also expect a 20% tax rebate as a higher rate tax payer from this pension contribution triggered by self assessment after April - not sure if that’s relevant at all.

Read the HMRC rules at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

To count as recycling the ability to pay into your pension must arise because you are receiving or will receive a pension lump sum (second bullet point). Unless you have some secret deal where employer paying PILON is being funded by your pension lump sum you are safe.   

OP has confirmed that they intend to take a lump sum their SIPP. They haven't given enough detail for anyone to know if they are 'safe'.

westv

Marcon said:

kermchem said:

JDK1971 said:

Hi 

I am shortly expecting to receive a pilon payment of circa £27k.  I have been told by my employer that this can’t be salary sacrificed into my workplace DC pension.

If I take the net PILON amount and pay it into my SIPP pension this tax year ( plus the automatic uplift from HL), and then take a lump sum from my SIPP next tax year, am I in any danger of flouting recycling rules?  

I would also expect a 20% tax rebate as a higher rate tax payer from this pension contribution triggered by self assessment after April - not sure if that’s relevant at all.

Read the HMRC rules at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

To count as recycling the ability to pay into your pension must arise because you are receiving or will receive a pension lump sum (second bullet point). Unless you have some secret deal where employer paying PILON is being funded by your pension lump sum you are safe.   

OP has confirmed that they intend to take a lump sum their SIPP. They haven't given enough detail for anyone to know if they are 'safe'.

There is no relation to any "recycling rules" in this case. It's no different to what many others do prior to retirement - stuff their pensions with as much as they can. 

Marcon

westv said:

Marcon said:

kermchem said:

JDK1971 said:

Hi 

I am shortly expecting to receive a pilon payment of circa £27k.  I have been told by my employer that this can’t be salary sacrificed into my workplace DC pension.

If I take the net PILON amount and pay it into my SIPP pension this tax year ( plus the automatic uplift from HL), and then take a lump sum from my SIPP next tax year, am I in any danger of flouting recycling rules?  

I would also expect a 20% tax rebate as a higher rate tax payer from this pension contribution triggered by self assessment after April - not sure if that’s relevant at all.

Read the HMRC rules at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

To count as recycling the ability to pay into your pension must arise because you are receiving or will receive a pension lump sum (second bullet point). Unless you have some secret deal where employer paying PILON is being funded by your pension lump sum you are safe.   

OP has confirmed that they intend to take a lump sum their SIPP. They haven't given enough detail for anyone to know if they are 'safe'.

There is no relation to any "recycling rules" in this case. It's no different to what many others do prior to retirement - stuff their pensions with as much as they can. 

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.

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

westv

https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/how-do-i-top-up-my-pension

"You can maximise your private pension in the years before you retire by making extra contributions to it. You can do this at any time, but it may be more practical to do so near retirement."

Albermarle

Marcon said:

westv said:

Marcon said:

kermchem said:

JDK1971 said:

Hi 

I am shortly expecting to receive a pilon payment of circa £27k.  I have been told by my employer that this can’t be salary sacrificed into my workplace DC pension.

If I take the net PILON amount and pay it into my SIPP pension this tax year ( plus the automatic uplift from HL), and then take a lump sum from my SIPP next tax year, am I in any danger of flouting recycling rules?  

I would also expect a 20% tax rebate as a higher rate tax payer from this pension contribution triggered by self assessment after April - not sure if that’s relevant at all.

Read the HMRC rules at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

To count as recycling the ability to pay into your pension must arise because you are receiving or will receive a pension lump sum (second bullet point). Unless you have some secret deal where employer paying PILON is being funded by your pension lump sum you are safe.   

OP has confirmed that they intend to take a lump sum their SIPP. They haven't given enough detail for anyone to know if they are 'safe'.

There is no relation to any "recycling rules" in this case. It's no different to what many others do prior to retirement - stuff their pensions with as much as they can. 

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.

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

OP,
The rules are in the above post, so to get a more definitive answer, you would need to say what you would intend to draw from the SIPP next tax year. The amount ? and would it all be tax free cash, or a mixture of tax free and taxable money?

It is probably worth saying that HMRC do not seem to have pursuing possible recycling cases as a priority, but of course you never know.