Question:

Do Pension Commencement Lump Sum (PCLS) recycling rules only apply for personal contributions? In other words, are employer contributions excluded for PCLS recycling purposes?

Paul’s answer:

Recycling rules apply where a PCLS payment is used as a means to significantly increase contributions to a registered pension scheme. Where a PCLS recycling is deemed to have occurred, the part of the PCLS payment that is deemed as being recycled, will be treated as an unauthorised member payment for tax purposes.

Details of the PCLS recycling rules can be found in the Pension Tax Manual (PTM133810) but they can be broadly summarised as follows.

The recycling rules apply where all the following conditions are met:

• A PCLS payment is taken which, when taken together with any other PCLS payments received in the previous 12 months, exceeds £7,500 (1% of standard LTA before 6 April 2015)
• Because of the lump sum, contributions paid into registered pension schemes in respect of the individual are significantly greater than they otherwise would have been (PTM133830)
• The additional contributions are made by the individual or by someone else, such as an employer
• The recycling was pre-planned (PTM133820).

So, as you can see from the above, the recycling rules and the required calculations, apply to both personal and employer contributions.

Important information

This article provides information and is only intended to provide an overview of the current law in this area and does not constitute financial advice, tax advice or legal advice, or provide any recommendations. The value of benefits depends on individual circumstances. The minimum age clients can normally access their pension savings is currently 55, and is due to rise to 57 on 6 April 2028, unless they have a lower protected pension age. Different options may have different effects for tax purposes, different implications for pension provision and different impacts on other assets and financial planning.

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