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  • FIRST POST
    • pensionpawn
    • By pensionpawn 5th Mar 19, 7:43 PM
    • 166Posts
    • 120Thanks
    pensionpawn
    Take 25% and then increase contributions.
    • #1
    • 5th Mar 19, 7:43 PM
    Take 25% and then increase contributions. 5th Mar 19 at 7:43 PM
    So from what I've read on this forum and through other pension advice services I believe that taking just your 25% without going into draw down does not trigger a drop in your annual allowance from 40k to 3k6? If that is true and one continues to work 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. Indeed if personal finances permit you could contribute up to the 40k limit until you start draw down. Am I correct in my understanding and if so has anyone done something similar? Thanks in advance.
Page 1
    • MallyGirl
    • By MallyGirl 5th Mar 19, 8:01 PM
    • 3,731 Posts
    • 9,166 Thanks
    MallyGirl
    • #2
    • 5th Mar 19, 8:01 PM
    • #2
    • 5th Mar 19, 8:01 PM
    I think this would fall foul of pension recycling rules

    https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/pension-lump-sum-recycling
    • Mnd
    • By Mnd 5th Mar 19, 8:48 PM
    • 1,246 Posts
    • 1,869 Thanks
    Mnd
    • #3
    • 5th Mar 19, 8:48 PM
    • #3
    • 5th Mar 19, 8:48 PM
    How much are you thinking of taking
    • pensionpawn
    • By pensionpawn 5th Mar 19, 9:56 PM
    • 166 Posts
    • 120 Thanks
    pensionpawn
    • #4
    • 5th Mar 19, 9:56 PM
    • #4
    • 5th Mar 19, 9:56 PM
    How much are you thinking of taking
    Originally posted by Mnd
    Around 20k.
    • pensionpawn
    • By pensionpawn 5th Mar 19, 10:10 PM
    • 166 Posts
    • 120 Thanks
    pensionpawn
    • #5
    • 5th Mar 19, 10:10 PM
    • #5
    • 5th Mar 19, 10:10 PM
    Thanks for the link. So all six rules must be met. However if you take no more than 7k5 as a TFLS all is well. If you take more than 7k5, say for example 20k, then as long as additional contributions (compared to the existing level of contributions over period t) does not exceed 30% (6k) then all is well.

    Does that sound right?
    Last edited by pensionpawn; 05-03-2019 at 10:34 PM. Reason: Misread link.
    • drumtochty
    • By drumtochty 5th Mar 19, 10:14 PM
    • 248 Posts
    • 134 Thanks
    drumtochty
    • #6
    • 5th Mar 19, 10:14 PM
    • #6
    • 5th Mar 19, 10:14 PM
    You think it is a good idea to let's say put 5,000 from your tax free sum back in to the pension.


    This with tax relief will increse the value to 6250 and then pay tax on 4,700, on the way out.


    Therefore tax free 1560 and taxable 80% of 4,700 which is 1,560 plus 3,760 equates to 5,320 and have the possibility of explaining why you have not recyled you pension. I am assuming you will pay BR tax in retirement.



    I think there are better things to do than that.
    • pensionpawn
    • By pensionpawn 5th Mar 19, 10:31 PM
    • 166 Posts
    • 120 Thanks
    pensionpawn
    • #7
    • 5th Mar 19, 10:31 PM
    • #7
    • 5th Mar 19, 10:31 PM
    You think it is a good idea to let's say put 5,000 from your tax free sum back in to the pension.


    This with tax relief will increse the value to 6250 and then pay tax on 4,700, on the way out.


    Therefore tax free 1560 and taxable 80% of 4,700 which is 1,560 plus 3,760 equates to 5,320 and have the possibility of explaining why you have not recyled you pension. I am assuming you will pay BR tax in retirement.



    I think there are better things to do than that.
    Originally posted by drumtochty
    However 7k (below guidelines) turns into 8750 which if you are going to cap draw down to your PA means no tax paid. Only trying to fly the envelope of the rules, not bend or break them.
    Last edited by pensionpawn; 05-03-2019 at 10:35 PM. Reason: Misread link.
    • Albermarle
    • By Albermarle 6th Mar 19, 3:13 PM
    • 883 Posts
    • 521 Thanks
    Albermarle
    • #8
    • 6th Mar 19, 3:13 PM
    • #8
    • 6th Mar 19, 3:13 PM
    There have been quite a few threads on this recycling subject and some different interpretations of the same rules, depending on which website you look at.
    Also it seems that almost no-one ( maybe no one at all) has ever been actually caught/punished/penalised since the rules came into place .
    There is a moral argument against it but I do not think that really applies in this case /with these sums .
    • pensionpawn
    • By pensionpawn 6th Mar 19, 8:22 PM
    • 166 Posts
    • 120 Thanks
    pensionpawn
    • #9
    • 6th Mar 19, 8:22 PM
    • #9
    • 6th Mar 19, 8:22 PM
    There have been quite a few threads on this recycling subject and some different interpretations of the same rules, depending on which website you look at.
    Also it seems that almost no-one ( maybe no one at all) has ever been actually caught/punished/penalised since the rules came into place .
    There is a moral argument against it but I do not think that really applies in this case /with these sums .
    Originally posted by Albermarle
    I think that given current pension rules allow you to recycle 2880 from 55 to 75 (gaining 14400 in tax rebate along the way), as you suggest, the amount we are discussing here is trivial in comparison, and much less of a moral issue. The TFLS is, after all, being used to repay debt in the first instance, which then releases income to be invested into a pension. Not quite as blatant as taking the money out of your pot and immediately putting it back in.

    Just asking so that I know that what is permissible and what isn't. As to the reason why, the remainder of the TFLF can be keep the family finances running for 5 months whilst dumping the majority of income into the pension. Boosts the pot and delays the start of draw down.
    • pensionpawn
    • By pensionpawn 6th Mar 19, 9:50 PM
    • 166 Posts
    • 120 Thanks
    pensionpawn
    Just Googling pension recycling came up with this link which confirms that TFLSs below 7500 do not trigger a recycling event. Thanks for the feedback everyone.
    • Mnd
    • By Mnd 7th Mar 19, 6:57 AM
    • 1,246 Posts
    • 1,869 Thanks
    Mnd
    That's what we do with myvwifes pension, just go careful, I think thatsca calendar year you have to wait, you can't do it now and then within 12 months
    • pensionpawn
    • By pensionpawn 7th Mar 19, 10:17 PM
    • 166 Posts
    • 120 Thanks
    pensionpawn
    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?
  • jamesd
    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?
    Originally posted by pensionpawn
    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.
  • jamesd
    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
    Originally posted by pensionpawn
    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.
    • pensionpawn
    • By pensionpawn 8th Mar 19, 2:01 PM
    • 166 Posts
    • 120 Thanks
    pensionpawn
    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.
    Originally posted by jamesd
    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).
    • Durban
    • By Durban 8th Mar 19, 2:19 PM
    • 147 Posts
    • 313 Thanks
    Durban
    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).
    Originally posted by pensionpawn
    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 13/4/2018 - 48,674
    MFD - October 2025 MF Goal Date 2021
    • chrisclay
    • By chrisclay 19th May 19, 4:22 PM
    • 19 Posts
    • 2 Thanks
    chrisclay
    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
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