Investment Pension Lump Sum Option in SIPP

johnsmclean · 15 June 2018 at 8:23AM

Hi,
I can take about £30K from one of my defined pensions as a lump sum. If still working as a higher rate tax payer can I invest that lump sum in a SIPP and get higher rate of tax relief ?

MK62 · 15 June 2018 at 8:49AM

You might fall foul of the pension recycling rules

Do a google for these - Royal London and Pruadvisor both have explanations and examples of when these rules apply (usually around recycling a pension lump sum in order to gain double tax relief)

You may also possibly fall foul of the annual allowance rules - depending on your earning and other pension contributions.....

Brynsam · 15 June 2018 at 10:06AM

Try https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/pension-lump-sum-recycling

dunstonh · 15 June 2018 at 11:33AM

I can take about £30K from one of my defined pensions as a lump sum. If still working as a higher rate tax payer can I invest that lump sum in a SIPP and get higher rate of tax relief ?

Or perhaps not take the lump sum?

(you say defined but a word is missing. Is that defined benefit or defined contribution)

jamesd · 15 June 2018 at 11:40AM

johnsmclean wrote: »

Hi,
I can take about £30K from one of my defined pensions as a lump sum. If still working as a higher rate tax payer can I invest that lump sum in a SIPP and get higher rate of tax relief ?

You can do that with at least some of it. I summarise the rules at the bottom of this post.

There are two broad types of pension, defined benefit, like final or average salary, or defined contribution, where there's a pot of money and investments just for you.

For defined benefit if you've reached the normal pension age of the scheme it'd be normal to take benefits at that age. Then you'd have to do something with the money. There's no restriction on taking the pension income and using that to fund extra contributions.

For defined contribution, taking no more than £7,500 per rolling twelve month period is the easiest way to stay within the rules. You can use that for pension contributions.

You're already pre-planning to use the lump sum for more contributions so you can't use the no pre-planning part of the rule.

johnsmclean · 15 June 2018 at 3:01PM

Hi,
yes defined benefits. I was thinking could take it a few months early which would in a different tax year ? Would access other defined benefits pension in next tax year and a few months after this.

kidmugsy · 15 June 2018 at 3:18PM

johnsmclean wrote: »

Hi,
yes defined benefits. I was thinking could take it a few months early which would in a different tax year ? Would access other defined benefits pension in next tax year and a few months after this.

Given that the taxmen are not mugs you should not be surprised to learn that there's a rolling five year window in use: the tax year you act, the previous two and the succeeding two. You gotta read the rules.

jamesd · 15 June 2018 at 6:24PM

There's no restriction on using 100% of the ongoing income from the two pensions for extra contributions, other than the annual allowance.

During the five year window mentioned by kidmugsy you can:

1. work out your normal typical pension contribution
2. increase by 100% of the new pension income
3. also increase by 30% of the lump sums total value on average over the five years.

In the third tax year after the tax year in which you take a lump sum you can use the rest of it for contributions, assuming enough annual allowance is available.

Say the lump sums are 30k and 20k, the income is 1.5k and 1k and your expected contributions based on the past have been 5k and you take both in the 18-19 tax year:

a. 7.5k is your new expected contribution level. 5 + 1.5 + 1
b. 30% of 30k + 20k is 15k. In tax years 18-19, 19-20 and 20-21 you can pay in a total of 15k on top of the 7.5k. Say 5k per year increasing the total from 7.5k to 12.5k.
c. in 21-22 you can use the remaining 35k from the lump sums

If you're leaving a pension scheme that can reset your expected contribution level.

Investment Pension Lump Sum Option in SIPP

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