Pension Recycling
David123
Member
Good morning
I have a client who works full time and will continue to do so (earns c£50k p/a). He wants to take his DB pension now and continue to work at the current level. DB will provide £200k PCLS and c£30k income per year.
His employer will enrol him into a new DC scheme once DB payment has been made. His thought is to go into the DC and sacrifice a significant amount of his £50k salary for the next 4/5 years of working full time.
He has been told by his employer that he can sacrifice up to 75% of his pay. I havent had this confirmed yet.
The PCLS is being used to repay mortgage, home improvements and a cash pot for him to enjoy life now and do Scuba Diving trips now whilst he has health. No PCLS received will be added to a pension scheme.
If he sacrifices say £30k of his pay, he will be in the same net income position as he is now, the DB income will replace the £30k being sacrificed.
Previously been paying £16,200 in pension contributions each year.
Would doing the sacrifice proposed above be considered recycling? Have read the manuals and can't make a final decision!
Thanks
Comments
Only a tax tribunal would be able to give you a final decision and no-one will be able to tell you whether it is OK or not.
You need to do the arithmetic tests first but I think all these have been failed by the looks of it so you are landed with preplanning - was it preplanned.
I would point out one point that the fact the PCLS does not go in the pension is irrelevant - it is whether the PCLS directly or indirectly causes the increase in contributions.