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    • Lancelot6
    • By Lancelot6 2nd Apr 17, 5:48 PM
    • 7Posts
    • 1Thanks
    Recycling Pension ?
    • #1
    • 2nd Apr 17, 5:48 PM
    Recycling Pension ? 2nd Apr 17 at 5:48 PM

    I would appreciate any help or suggestions anyone can offer me.

    I like a lot of other people am very confused by the re-cycling rules on pensions. Everything I read appears to refer to Defined Contribution (DC) pensions, and there does not seem to be anything referring to Defined Benefit (DB) pensions.

    I am 55 and have a private employer based DB pension which I would like to take as soon as I can clarify the rules. At 55 the pension gives a tax free lump sum of 120,000 and a reduced pension of 18,000 p.a.

    If I take the pension, and continue working as I intend to do with my current salary of approx. 40,000 I will clearly end up paying higher tax rate, since my combined earnings will be 40,000 + 18,000 = 58,000 p.a

    If I leave the lump sum in a bank, or invest it elsewhere, not in a pension, can I join a SIPP and pay 30,000 p.a. into the SIPP from my salary (includes employer contributions, and current AVC contributions) to avoid the 40% tax which I would otherwise pay?
    My understanding is:-

    1. That I am not recycling since I am not using tax free cash from my lump sum, I will be reducing my employment earnings by paying them into the SIPP. And will be living off the remainder of my earnings plus my pension. I assume the pension will be taxed at 40% initially which I will then have to claim back?

    2. I can also do this because I am not exceeding 100% of my employment earnings of 40,000.

    3. There will be no reduction in my yearly allowance of 40,000 because I am taking the pension from a DB pension scheme, and not a DC scheme.

    4. After about 1 5 years, when I have had enough of work, I will be able to take another 25% lump sum from the SIPP, and draw down the remainder whenever I need it.

    I am nowhere near the lifetime allowance of 1,000,000 I really just want to know if I can do it legally, and if I am missing anything obvious.

    I have done the maths, and providing the government do not change any rules (yes, I know they may well do, and have been thinking about it) then the maths far and away says that leaving the DB and joining the SIPP is the best thing to do.

    Thanks for your help,

Page 2
    • haf63
    • By haf63 9th Jan 18, 1:29 PM
    • 204 Posts
    • 52 Thanks
    sorry - LTA i.e Lifetime allowance limit of 1m pounds.
    My understanding is that the limit is fixed (aside from index linking) so if i am at 1m when i retire then earnings via a part time job etc will not be able to be put into a sipp to gain a tax advantge due to the LTA excess of 55% tax.
  • jamesd
    The lifetime allowance charge is 55% on a lump sum. It's 25%, plus any income tax, if the money is taken as income, as via drawdown. It's possible to gain more than that on the way in sometimes, say via employer matching or some salary sacrifice situations.
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