Pension recycling

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  • wats0062
    wats0062 Posts: 20 Forumite
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    Called the Pensions Advisory Service today. What a waste of time. Cannot tell me if I might break the recycling rule. Gave me a link to those 6 guidelines and told me to take financial advice!
  • jamesd
    jamesd Posts: 26,103 Forumite
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    You might but if you can tell us your pension contribution history for the last five years it should be possible to say what you can do within the limits. Five years is to get a base level for five year rule purposes.
  • wats0062
    wats0062 Posts: 20 Forumite
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    jamesd wrote: »
    You might but if you can tell us your pension contribution history for the last five years it should be possible to say what you can do within the limits. Five years is to get a base level for five year rule purposes.
    Sorry, I don't have that info without going through 5 years payslips. My LTA last time i looked (recently) was about 74%.
    I won't be paying more than £80k into the new pension scheme from my salary though. That's over the next two years. Once the 2 years are up i'll be drawing down the new pension. At that point I won't be paying into any pensions unless I decide I want to go back to work.
    I will have paid enough NI for full state pension.
  • SpeedSouth
    SpeedSouth Posts: 333 Forumite
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    Hi,

    Sorry to hijack this thread, but seemed to be on point with the question I had.
    Speaking with my Dad (so not affecting me yet), he was under the impression that even though he has taken a TFLS from one of his DB pensions, he could continue to contribute up to £40K into his SIPP.

    However @ Jamesd following your link,
    jamesd wrote: »
    I describe the recycling limits from a what you can do end here.
    it appears that is not the case, and once you trigger a TFLS/drawn down from any pension you are then limited to £4k contribution across any remaining pensions.
    jamesd wrote: »
    If you take out anything beyond the 25% tax free lump sum you will have the amount you and anyone else can pay into defined contribution pensions in your name reduced to £4,000 a year. Usually this won't matter but it may if you're continuing to work. It doesn't apply if you have one of the older pre-April 2015 capped drawdown products and only draw up to the GAD limit. It doesn't affect contributions to defined benefit pensions like final or average salary.[/URL].

    Do you have had to satisfy the TFLS. Would drawdown only not trigger the recycling rule? He is not PAYE, but self employed currently.

    Hopefully its a simple yes or no...
  • Albermarle
    Albermarle Posts: 22,140 Forumite
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    Taking a DB scheme does not affect your ability to contribute to another pension in the normal way.
    Neither does taking an annuity with a DC pot .
    However if you take any taxable income ( so anything over and above the 25% TFLS) direct from a DC pot , it triggers the MPAA £4K restriction.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    adam81 wrote: »
    Speaking with my Dad (so not affecting me yet), he was under the impression that even though he has taken a TFLS from one of his DB pensions, he could continue to contribute up to £40K into his SIPP.

    However @ Jamesd following your link
    He can. I've edited the post so that the relevant section now says:

    If you flexibly (UFPLS or drawdown) take out anything beyond the 25% tax free lump sum from a personal pension you will have the amount you and anyone else can pay into defined contribution pensions in your name reduced to £4,000 a year by the Money Purchase Annual Allowance (MPAA). Usually this won't matter but it may if you're continuing to work. It doesn't affect contributions to defined benefit pensions like final or average salary.

    You can take all of the money out of up to three personal pension pots per lifetime each worth no more than £10,000 using the small pots rule without triggering the MPAA reduction. This is described at PTM063700 and can be either money you've taken a tax free PCLS from already (so all taxable) or uncrystallised (25% tax free).

    Taking taxable money from the state pension or a defined benefit pension (like final or average salary) doesn't trigger the MPAA 4k restriction. It isn't triggered if you have one of the older pre-April 2015 capped drawdown products and only draw up to the GAD limit.
  • Audaxer
    Audaxer Posts: 3,508 Forumite
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    jamesd wrote: »
    He can. I've edited the post so that the relevant section now says:

    If you flexibly (UFPLS or drawdown) take out anything beyond the 25% tax free lump sum from a personal pension you will have the amount you and anyone else can pay into defined contribution pensions in your name reduced to £4,000 a year by the Money Purchase Annual Allowance (MPAA). Usually this won't matter but it may if you're continuing to work. It doesn't affect contributions to defined benefit pensions like final or average salary.

    You can take all of the money out of up to three personal pension pots per lifetime each worth no more than £10,000 using the small pots rule without triggering the MPAA reduction. This is described at PTM063700 and can be either money you've taken a tax free PCLS from already (so all taxable) or uncrystallised (25% tax free).

    Taking taxable money from the state pension or a defined benefit pension (like final or average salary) doesn't trigger the MPAA 4k restriction. It isn't triggered if you have one of the older pre-April 2015 capped drawdown products and only draw up to the GAD limit.
    jamesd, if adam81's dad has taken the option of a large tax free lump sum from his DB pension, and then increases contributions to his SIPP by more than 30% over 5 years, I thought that would fail to pass one of the recycling rules?
  • jamesd
    jamesd Posts: 26,103 Forumite
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    Depends on the details. Some relevant ones:

    1. An increase by the amount of new DB income is allowed and just becomes part of the expected annual contributions because recycling of that is allowed.
    2. Then on top of that there's the five year rule's 30%.
    3. The DB might have been taken at the normal pension age of the scheme. If it was, taking the benefits would just be normal retirement planing. Then the lump sum has to be used in some way and that may not have been pre-planned. If so, recycling the whole lump sum could be fine (both normal retirement planning and lack of pre-planning exemptions). Particularly if the pension doesn't get zany extra increments from waiting. This is one HMRC might be more inclined to try it on with but the burden of proof is on them.

    Not sure that adam81 was thinking of this rather than just the MPAA, though.
  • SpeedSouth
    SpeedSouth Posts: 333 Forumite
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    Thanks both, it was the MPAA that I was referring to in the first instance. Reading both your posts I don't think he has a problem if he continues with his current thinking.
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