NHS pension: what should I do?

Shadyocuk

https://forums.moneysavingexpert.com/discussion/comment/82027947#Comment_82027947

If the OP receives a tax free lump sum from their DB pension , then surely it is possible that their future pension contibutions could fall foul of the recyling rules. Simply having relevant income would not exempt them from the recycling rules (otherwise practically everybody would be exempt).

jimi_man

https://forums.moneysavingexpert.com/discussion/comment/82028118#Comment_82028118

Again, no. The OP states that taking the small lump sum (£110K) means he will creep into the HR bracket. For it to be classed as recycling then one of the conditions is 'are the contributions more than 30% of the tax free cash received'. There are other conditions that need to be satisfied also for it to be classed as recycling, but unless 'creeping into the HR tax bracket' is to the tune of £33k (so a combined pension and PT work income of £83k) then it isn't recycling.

LightFlare

What (if any) plans do you actually have for the lump sum

jimi_man

https://forums.moneysavingexpert.com/discussion/comment/82028439#Comment_82028439

If it fails one of the tests then it cannot be described as pension recycling ‘by definition’. It either is or isn’t and in this instance, according to the rules, it isn’t

In the second example 30% of £10k is £3000 - below the suggested £7500 limit so that also isn’t pension recycling.

Also it’s a somewhat moot point since I’m not aware of more than one lump sum in this scenario. The OP is trying to choose between £110k and £195k I believe.

kermchem

There have been various posts to online resources about pension recycling, both the HMRC pages and advice from various pension providers. I found an interesting document from A J Bell, on their adviser not customer site.

"Example 2" is probably exactly what the OP proposes to do, take pension continue as a consultant and pay consultancy fee into a new pension, and AJB advise it is not recycling.

The author says (4 years ago, for now 20 year old rules) that there have been no court cases or tax tribunal cases concerned with pension recycling. This is a set of rules designed to scare pension savers not to do something wrong, where the rules are deliberately a little vague in places (i.e., the recycling has to be deliberate, but HMRC has to prove it is deliberate), and AJB say they can find no examples of cases going to court.

jimi_man

https://forums.moneysavingexpert.com/discussion/comment/82030097#Comment_82030097

This is where you are getting confused. It's not recycling at all within the HMRC rules. Simply because he is not using the PCLS to fund his extra contributions (either directly or indirectly) into the pension. The lump sum is playing no part in the decision at all. If he hadn't received a lump sum at all then he'd still have his extra income because of his pension + PT income and so this would still take him over the HR Threshold and he's still pay extra pension contributions. In fact if it wasn't a mandatory lump sum and he could have traded his lump sum for extra pension then his contributions would be much higher and this was exactly what happened when I did it. I chose not to take a PCLS and then paid substantially more into my pension to take me under the HR threshold.

Don't forget that recycling only applies to Pension lump sums NOT to extra income gained from taking a pension.

Your example at the end is exactly where the OP is at - because of the higher overall 'salary' (comprising his PT salary and his DB Pension income) he now has, he wants to take himself below the HR limit (this is very common, a lot of people do or have done this) and so will pay more into his pension to alleviate this. This is entirely legitimate and within the HMRC rules and he wouldn't 'fall foul' of this test because - as stated - his lump sum has no bearing on his contributions. It's purely down to extra income which has been generated from an additional income stream NOT the lump sum.

Obviously if he wanted to use his lump sum to make a one off contribution then that's where the recycling rules come in (and what they are designed to prevent). He'd be better off in that situation paying into a spouse's pension which would then not make it a recycling event but that's another matter.

mrklaw

I find recycling is potentially something we fuss too much about because of interpretation etc beyond what HMRC likely do.

like - if you take any tax free cash its almost inevitable that will indirectly enable you to contribute more because you have more income that year. Even if you kept your contributions the same that might be only possible because of the TFC.

I think as long as you’re not taking TFC and pumping significant amounts into your own DC you should be ok. Spouse seems safe - DB to DC I think is also safe?

Bobinyorkshire

I have now spoken to numerous nhs staff, both retired and working and very nearly all have taken or plan to take the larger lump sum with the decision largely based on a pessimism about the future and wanting the money now.

GrubbyGirl_2

I can understand taking a bigger lump sum if you have debt you intend to pay off with it. Debt is expensive. But if all you are going to do is put it in a savings account then you're much better off taking the bigger pension as the pension increases at a higher rate than savings interest plus you're getting more each month on top which you could put into a savings account and get interest on it

QrizB

https://forums.moneysavingexpert.com/discussion/comment/82034145#Comment_82034145

People can be very clever and capable in their own field but still have no competence with money.

As a taxpayer I thank them for their selfless surrender of their pensions.