Whether to topup SIPP immediately prior to retirement

Lowtrawler

It appears the financial conclusion has been reached - if I put £25k into the SIPP, it will benefit me around £2,500 and so is the financially astute move.

The next question is whether this gets caught by recycling rules? If it does, is there an amount I could put in that would not be caught by those rules? I am thinking because I have a history of £60k annual contributions, partially made up from personal lump sum values, there would be an expectation that some of it would be normal practice.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82124980#Comment_82124980

I think you would need to look at your personal contributions and ignore any salary sacrifice contributions. So if the £60k contributions were all personal contributions you may be OK. But if you did salary sacrifice for the lot and then add £25k as personal contributions this year maybe not.

If the £60k contributions are all personal contributions you would also need to see when you started with those contributions - was that before the five year period around the year you take the TFLS began? Eg you take the TFLS in 27/8 did you only start the £60k contributions in 25/6 or was it before?

ETA Strike through shows incorrect comment. Please ignore.

af1963

https://forums.moneysavingexpert.com/discussion/comment/82124980#Comment_82124980

Recycling rules are summarised here.

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

For steps 1 and 2, and 5 in the checklist, it looks like you probably answer Yes,

You may find that either step 3 (the increase in your pension contributions must be over 30% of previous contributions to be considered recycling) or step 4 ( the additional contributions must be over 30% of the tax free cash to be considered recycling) give you ways to justify it not being recycling.

For example,.even if the whole 25k was considered as an increase (e.g. you had zero personal contributions in previous years), if the total TFC taken is more than 83333 , then the 25K would be under 30%.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82125006#Comment_82125006

Total contributions are relevant, not just personal, see

PTM133830 - Unauthorised payments: deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: significant increase in contributions and cumulative basis - HMRC internal manual - GOV.UK

I doubt the recycling rules are worth worrying about in OP's case.

Lowtrawler

Thanks everyone, I will be taking a closer look at the recycling rules and deciding whether to make a contribution after this.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82125156#Comment_82125156

My mistake. I apologise - if anything it makes the OP position better than I thought it might be.

Lowtrawler

https://forums.moneysavingexpert.com/discussion/comment/82125229#Comment_82125229

Looking at my contribution history, the main issue is the increased contribution limit to £60k from £40k. It means my contributions have naturally increased by 50% over the relevant period which means I would need to rely on no pre-planning. Clearly, making a lump sum contribution immediately prior to retirement could not be called unplanned. It's actually quite interesting because anyone planning to retire this year having previously maxing out their annual allowance will also need to rely on the no pre-planning rule as they will all be otherwise caught.

I think I will give it a miss rather than risk breaching the rules.

DRS1

Wasn't the rise from £40k to £60k some time ago? The 5 years are centred on the year you take the TFLS so if that was 26/7 you'd only be going back to 24/5 as year 1 of the 5 year period and you'd be comparing the contributions to those prior to 24/5 which might include a 60k year.

The other thing you could perhaps say is that the increase from 40k to 60k was because of the increase in the AA not the lump sum receipt - they do allow for contribution increases which are driven by other things like a pay rise and a rise in the allowance could be regarded as a similar driver.

Lowtrawler

https://forums.moneysavingexpert.com/discussion/comment/82125251#Comment_82125251

The first possible year to use £60k was 2023/24. I had continued to apply £40k that year as I tend to plan a year in advance. Unfortunately, I then used that underpayment to overpay in 2024/25. It means the 2024/25 to 2026/27 relevant years are even higher than a 50% increase.

While I am confident this pattern will not show any intended pre-planning for recycling of the contributions I have made, I'm not convinced the same could be said of a one-off contribution immediately prior to retiring and claiming the PCLS.

DRS1

Fair enough. There is no point doing something if you are going to be worrying about it for years afterwards.

It would be interesting to know if anyone has ever actually fallen foul of these recycling rules - in the sense of HMRC knocking on their door.