Recycling

ClashCityRocker1

Ther's been a lot of chat about whether lump sums invested fall foul of reccling rules and also the (in)famous £3600 in gross each yaer when you retire but last night it occurred to me that when you reach 55/57 (ten years before NRA) provided you have been contributing to a DC scheme have a sizeable pot and still have plenty of room to put more in you could use the rules another way.

Once you get within 10 years you can take £7500 TFC and move £22,500 into drawdown. You can then put the £7500 back into the pension and get tax relief on it. Then you can wait 12months and a day and if the fund has enough in it do it again. Repeat until all funds in drawdown.

Am I wrong?

retiringin26

That would be pure and simple recycling. No ifs or buts.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82133881#Comment_82133881

the checklist has £7500 as one of the gates though - if you don’t put more than that in its automatically not?

retiringin26

Ah, I stand corrected. I thought the threshold was lower than that. Apologies

Marcon

https://forums.moneysavingexpert.com/discussion/6683013/recycling

That's exactly what a great many people do, taking full advantage of just about the only really clear bit of the recycling legislation!

NoMore

You could but why ? It may not work out very tax efficient if you get to the point where you actually want to withdraw from the pension at retirement and have very little tax free cash available but a large taxable drawdown pot.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82133970#Comment_82133970

Not that many people are going to get to that halycon place. If they do, using the small pots rule could squeeze another £7,500 tax free cash.

af1963

https://forums.moneysavingexpert.com/discussion/comment/82133970#Comment_82133970

As long as you don't expect to be one of the unusual edge-cases ( e.g. paying basic rate while working but higher rate in retirement, or exceeding the maximum tax free cash) there is a small benefit from doing it.

Looking only at the parts of the pension that are affected:

Uncrystallised Pension	30000
Crystallised pension	0
Value if taxed at 20% (with 25% of uncrystallised tax free)	25500
TFC withdraw	7500
Pay back in with tax relief added	9375
New Uncrystallised Pension	9375
New Crystallised pension	22500
Value if taxed at 20% (with 25% of uncrystallised tax free)	25968.75

You'd need to have at least £9375 in earnings which haven't already been used to cover pension contributions.