Take 25% and then increase contributions.

Options
pensionpawn
pensionpawn Posts: 946 Forumite
First Anniversary First Post Name Dropper
in Pensions, annuities & retirement planning
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.
«1

Comments

  • MallyGirl
    MallyGirl Posts: 6,627 Senior Ambassador
    Photogenic First Anniversary Name Dropper First Post
    Options
    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
    I’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
    & Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
    All views are my own and not the official line of MoneySavingExpert.
  • Mnd
    Mnd Posts: 1,699 Forumite
    First Anniversary Name Dropper First Post
    Options
    How much are you thinking of taking
    No.79 save £12k in 2020. Total end May £11610
    Annual target £24000
  • pensionpawn
    pensionpawn Posts: 946 Forumite
    First Anniversary First Post Name Dropper
    Options
    Mnd wrote: »
    How much are you thinking of taking

    Around £20k.
  • pensionpawn
    pensionpawn Posts: 946 Forumite
    First Anniversary First Post Name Dropper
    edited 6 March 2019 at 12:34AM
    Options
    MallyGirl wrote: »
    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

    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?
  • drumtochty
    drumtochty Posts: 440 Forumite
    First Anniversary First Post
    Options
    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
    pensionpawn Posts: 946 Forumite
    First Anniversary First Post Name Dropper
    edited 6 March 2019 at 12:35AM
    Options
    drumtochty wrote: »
    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.

    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.
  • Albermarle
    Albermarle Posts: 22,179 Forumite
    First Anniversary First Post Name Dropper
    Options
    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
    pensionpawn Posts: 946 Forumite
    First Anniversary First Post Name Dropper
    Options
    Albermarle wrote: »
    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 .

    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
    pensionpawn Posts: 946 Forumite
    First Anniversary First Post Name Dropper
    Options
    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
    Mnd Posts: 1,699 Forumite
    First Anniversary Name Dropper First Post
    Options
    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
    No.79 save £12k in 2020. Total end May £11610
    Annual target £24000
This discussion has been closed.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.3K Banking & Borrowing
  • 250.1K Reduce Debt & Boost Income
  • 449.7K Spending & Discounts
  • 235.3K Work, Benefits & Business
  • 608.1K Mortgages, Homes & Bills
  • 173.1K Life & Family
  • 248K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards