Forum Home» Pensions, Annuities & Retirement Planning

Take 25% and then increase contributions. - Page 2

New Post Advanced Search

Take 25% and then increase contributions.

16 replies 1.9K views
2»

Replies

  • pensionpawnpensionpawn Forumite
    237 posts
    100 Posts Second Anniversary Name Dropper
    ✭✭
    Someone decides to crystallise £100000 of a £400000 pot providing a £25000 TFLS and a draw down amount of £75000. Can this person subsequently make UFPLS withdrawals from the remaining £300000 that is yet to be crystallised?
  • jamesdjamesd Forumite
    24K posts
    Part of the Furniture 10,000 Posts
    ✭✭✭✭✭
    Someone decides to crystallise £100000 of a £400000 pot providing a £25000 TFLS and a draw down amount of £75000. Can this person subsequently make UFPLS withdrawals from the remaining £300000 that is yet to be crystallised?
    Yes, and as son as they do so they will trigger the money purchase annual allowance reduction from £40k to £4k per year.

    To avoid that the person might ant t consider the small pot rule.
  • jamesdjamesd Forumite
    24K posts
    Part of the Furniture 10,000 Posts
    ✭✭✭✭✭
    I have not read anything that suggests that after using part of the 25% to repay debt subsequently increasing your pension contributions by the previous amount of regular debt repayment contravenes any rules / regulations. ... Am I correct in my understanding
    Yes, provided the debt wasn't incurred specifically to use the borrowed money to make higher pension contributions then repay the borrowing from the lump sum.

    Potentially not permitted recycling: borrow £100k and make a £100k pension contribution to have £125k gross in the pension, take £31.25k tax free lump sum to repay £31.25k of the borrowing. Because this was planned in advance for recycling it's problematic. See example 3.

    Permitted not recycling: take a £100k tax free lump sum to repay a personal loan used to buy a world cruise or car then use the money that would have gone towards monthly loan repayments for extra pension contributions instead. There has been no preplanning and is no recycling either so permitted. See example 6 though it doesn't mention using the absence of debt repayments specifically.

    Your description appears to match the second case and to be fine because the borrowing wasn't to make extra contributions, you just have more money free.

    If you do want to use borrowing to enable higher contributions then repay with a tax free lump sum and have a spouse or other person willing to borrow and give you - not lend you - the money we could discuss how to do that.
  • pensionpawnpensionpawn Forumite
    237 posts
    100 Posts Second Anniversary Name Dropper
    ✭✭
    jamesd wrote: »
    Yes, provided the debt wasn't incurred specifically to use the borrowed money to make higher pension contributions then repay the borrowing from the lump sum.

    Potentially not permitted recycling: borrow £100k and make a £100k pension contribution to have £125k gross in the pension, take £31.25k tax free lump sum to repay £31.25k of the borrowing. Because this was planned in advance for recycling it's problematic. See example 3.

    Permitted not recycling: take a £100k tax free lump sum to repay a personal loan used to buy a world cruise or car then use the money that would have gone towards monthly loan repayments for extra pension contributions instead. There has been no preplanning and is no recycling either so permitted. See example 6 though it doesn't mention using the absence of debt repayments specifically.

    Your description appears to match the second case and to be fine because the borrowing wasn't to make extra contributions, you just have more money free.

    If you do want to use borrowing to enable higher contributions then repay with a tax free lump sum and have a spouse or other person willing to borrow and give you - not lend you - the money we could discuss how to do that.

    Having recently read the Gov rule book on recycling a lump sum under £7500 is no problem however above that there is an element of interpretation. Certainly room for two parties to come to differing conclusions. I agree with what you've said however if you consider that 'pension mortgages' were quite popular in the early 1990's (I had one) and their main selling point was paying off (at least part of) your mortgage with your lump sum I wouldn't mind betting that that could (unfairly in my view) be considered as planning in advance?

    It would be useful to hear from anyone who has discharged a large debt and increased their pension contributions by at least the amount that was repaying the loan(s).
  • DurbanDurban Forumite
    341 posts
    Fifth Anniversary 100 Posts
    ✭✭
    Having recently read the Gov rule book on recycling a lump sum under £7500 is no problem however above that there is an element of interpretation. Certainly room for two parties to come to differing conclusions. I agree with what you've said however if you consider that 'pension mortgages' were quite popular in the early 1990's (I had one) and their main selling point was paying off (at least part of) your mortgage with your lump sum I wouldn't mind betting that that could (unfairly in my view) be considered as planning in advance?

    It would be useful to hear from anyone who has discharged a large debt and increased their pension contributions by at least the amount that was repaying the loan(s).

    We will be doing something similar. I posted a recycling thread a while ago with similar circumstances.

    We are saving up money in regular savings , peer to peer , workplace save scheme. In 2 years time , there will be approximately £25, 000 which will then be put into his pension. We would then gain basic rate tax relief and will draw approximately the same amount out and will pay off the balance of the mortgage.

    I wasn't sure if this would fall foul of the pension recycling rules but it appears that it doesn't and we will be permitted to do this hopefully.
    Mortgage at highest start date - 25/9/2014 - £92000
    Mortgage now 23/5/2020 - £31,181
    MFD - October 2025 MF Goal Date 2021
  • chrisclaychrisclay Forumite
    20 posts
    Hello I have been reading this thread and I think I understand the rules on recycling but it would be nice to have this confirmed.
    We were late starting a pension due to a failed endowment mortgage so my pot is small.
    My situation is this I have an old pension with Reassure that matures next month when I become 60 the pot is £13,000. I also have Nest pension that was started 2 years ago under auto enrollment, its value is around £22,000 and I intend to pay in around £10.000 a year and have
    achieved this for the last 2 years. So what I had considered was taking the 25% from my Reassure pension that will be tax free then either paying this into my Nest pension or using it to pay for our holiday then paying the holiday money into the Nest Pension. From what I have read in this thread as my 25% is less than £7,000 Iam not breaking any rules could some one confirm that please
Sign In or Register to comment.

Quick links

Essential Money | Who & Where are you? | Work & Benefits | Household and travel | Shopping & Freebies | About MSE | The MoneySavers Arms | Covid-19 & Coronavirus Support