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Video looking at Pension Transfers

Watch the latest CII accredited MasterClass from our Financial Planning and TechTalk team and add to your CPD learning. In this recorded MasterClass from 30 April 2019 we share our technical guidance focusing on pension recycling. 

By the end of this masterclass you will be able to explain;

  • The pension commencement lump sum recycling rules
  • Pension income recycling
  • How the MPAA limits pensions recycling.
  • Company: Lloyds Banking Group

    Conference Title: Pension Recycling

    Date: Tuesday, 30th April 2019

    Conference Time: 05:30 AM UK

    Paul Rutkowski: Good morning, and welcome to the Scottish Widows CII Accredited TechTalk Master Class on Pensions Recycling. Today I'm joined by Bernadette Lewis and Tom Coughlan from Scottish Widows Financial Planning Team who will shortly be taking us through the presentation. At the conclusion of the presentation, you will hear where you can find and access further information covered in today's slides.

    As you'll be aware, the objective of these presentations is to provide you with valuable insights into topical areas of pension planning. With the availability of drawdown and new pension freedoms, many clients will be maintaining contributions having already accessed their benefits. This means that the questions of whether any of the recycling rules and the associated tax charges that apply may need to be asked.

    The tax advantages of pensions are amongst the best available to clients. The current high rates of tax relief available on contributions give clients an excellent incentive to save for their retirement. The complexities of the system, however, mean that it may be possible to extract higher levels of tax relief and lower the eventual rates of tax to levels that were not originally intended by the rules.

    The tax-free cash recycling rules and the money purchase annual allowance limit the benefits that can be obtained from the recycling of pension benefits, imposing potentially onerous tax charges where they apply. It is important for advisors to know what triggers these rules and what the potential tax consequences are. It is also critical that advisors are aware of how to stay on the right side of the rules so that legitimate financial planning is not inadvertently penalized.

    We will look at the 4 main requirements for the lump sum recycling rules as well as H M Revenue & Customs guidance on each of these points. We will consider income recycling and how this is now impacted by the Money Purchase Annual Allowance and how the £4,000 annual allowance restricts recycling more generally. To help advisors deal with these complex areas, we have a range of TechTalk articles on related topics, accredited CPD guides, and a number of tax calculators which can all be accessed via the Scottish Widows Advisor website.

    Today's presentation will last for about 35 minutes, following which time there will be time to answer any of the questions that you have raised. Full details of how you can ask questions will again be given out at the end, but just to say, you can ask questions online as you go along. The presentation will be recorded and available for subsequent review via the Scottish Widows website and CPD certificates will also be issued for those who are attending live. I'd like to now hand the call over to Tom to continue.

    Tom Coughlan: Thank you, Paul. Good morning everyone. Pensions Recycling has become a catch-all term for any attempt to use the complex pension tax system to artificially increase the value of pension benefits or reduce the rate of tax. That can be either by simply drawing money out, paying it back in as a tax relief contribution, or perhaps by using a pension to bypass some other form of tax such as payroll.

    But there are 2 main rules in place to limit that. So there are the tax-free cash recycling rules or pension commencement lump sum recycling rules as they're referred to in the guidance, and the Money Purchase Annual Allowance. So both of those operate to limit the benefit from recycling, they don't entirely eliminate it.

    So the main areas I will look at, we'll look at the general recycling rules, we'll look at tax-free cash recycling, we'll look at income recycling, and then as Paul mentioned, we'll look at how the Money Purchase Annual Allowance limits recycling more generally. As we go through, we'll refer to the HMRC's Pension Tax Manual Guidance just to show you where you can find further information on recycling. As we go through, please submit your questions over the website.

    As I say, this is a CII accredited Master Class. The objectives of the session are to enable you to be able to explain the tax-free cash recycling rules, the benefit of pension income recycling and how it is limited and how the Money Purchase Annual Allowance operates to prevent both of those aspects of recycling.

    Okay, so just to summarize the 3 main types of pension recycling, so there is the drawing of tax-free cash and then paying that back in as a tax-relievable contribution. There is receiving pension income, so scheme pension, annuity, drawdown, any of those, and again, paying those funds back in as a tax-relievable contribution. And then there is diverting employment income into a pension and then from age 55 drawing it out as tax-free cash or pension income. And that possibility was opened up with Freedom and Choice. Hence, the introduction of the Money Purchase Annual Allowance.

    The benefit of tax-free cash recycling is simply that the lump sum itself is tax-free, but when it's paid back in, it's paid back in as a net contribution, so the tax relief is paid into the pension as well on top of that original amount. Pension income recycling should be tax neutral, so the tax on the way out is the same as the tax relief that the contribution then attracts.

    However, it does convert crystalized funds back into uncrystalized funds, allow them to generate further tax-free cash or further UFPLS of which 25% will be tax-free. Then when it comes to earnings, the taxable payment is reduced from 100% to 75% because of the tax-free cash and that amount also avoids employer and employee NICs as well.

    We'll look at more detailed tax-free cash recycling rules. So as I said, this is just the use of tax-free cash to significantly increase a pension contribution and the rules are there to prevent systematic exploitation of these rules. And where there is a breach, then there is an unauthorized payment and the penal charges that go with that.

    The example on this slide just shows what would be possible in the absence of these rules, just to show why they are necessary. So a client with a personal pension withdraws £24,000 tax-free cash, that's on the right-hand side. That would require £72,000 to be moved from pre-retirement to post-retirement and moved into drawdown, just to crystallize those funds. If that client has £24,000 cash in their hands, they use that to pay a £32,000 net contribution, that would require £8000 from their own funds added to that £24,000.

    However, if they are a high rate taxpayer, when they claim the higher rate relief, they would get the £8000 back, so that wouldn't actually cost the client anything. There's just a time lag between paying that contribution and getting the £8,000 back. So that £32,000 net contribution becomes a £40,000 gross contribution, so the value of their pension has increased by £16,000 just by drawing the tax-free cash and then using high rate relief to pay back in a £40,000 contribution. And that would, in the absence of the recycling rules, that would be potentially available every year.

    So hopefully that just demonstrates why tax-free cash recycling rules are required.

    In order for them to apply, there are six requirements that have to be met. I'll just go through those briefly now. So the first is that tax-free cash has to be received, which is self-explanatory. Because of the tax-free cash, there has to be a significant increase in the contribution - and the first part of the sentence is key, the significant increase in contributions has to be as a result of receiving the tax-free cash. The 2 have to be linked. The increasing contributions have to be paid by the individual or another person.

    That rule is just there to cover the situation where the employer pays the contributions, but doesn't evade the tax-free cash recycling rules. The pre-planning rule is very important so there has to be intent to use the tax-free cash to fund the increased contributions and Bernadette is going to go through those aspects in a moment.

    The tax-free cash itself has to be more than £7,500 and what HMRC will do is look back over the previous 12 months and look at whether the tax-free cash is used to recycle and they will include any other amounts of tax-free cash from the previous 12 months as well.

    So that just prevents the client just taking multiple amounts in stages just below the threshold. This is the rule that everyone forgets, including myself, so the cumulative amounts of additional contributions have to be more than 30% of the tax-free cash, essentially at least 30% of the tax-free cash has to be paid back in as increased contributions.

    So there are 6 rules. However, there are 4 that are key. I've just highlighted the 4 key ones there. So the first one is tax-free cash received. As I said, that's implicit in the whole scenario anyway. And the third rule just says contributions paid by anyone, so that one isn't particularly important. And I'll just summarize those 4 rules as follows. So tax-free cash greater than £7,500, significant contribution increase, 30% of the tax-free cash is recycled, and pre-planning, so intent to use the cash to fund those extra contributions.

    Bernadette is going to go through each of those 4 rules in more detail now and we'll just keep those 4 rules in the top right-hand corner of the screen just as a reminder for you. So I'll hand over to Bernadette now.

    Bernadette Lewis: Thank you, Tom. The first of those rules as Tom mentioned is has the person withdrawn tax-free cash of more than £7,500? And if we look at Pensions Tax Manual, it does express the fact that this has to be including lump sums taken over the previous 12 months period. It's £7,500 when we're looking at events on or after 6 of April, 2015 when the Pension Freedoms came in. Historically, it was 1% of the standard lifetime allowance, so that was a much higher limit.

    But generally speaking, if we're looking at people concerned about whether these rules apply now, we're going to be considering the £7,500 limit. The important thing to remember here is we are always looking at the total of tax-free cash taken over a rolling 12-month period. And this is obviously one of the anti-avoidance elements in this piece of legislation.

    So the second point to consider is, has there been a significant increase in contributions? And again, if we turn to Pensions Tax Manual, HMRC literally refers to a rule of thumb and says that a significant increase involves an increase which is more than 30% of the contributions that might otherwise have been expected. And that it has to be linked to actually receiving a pension commencement lump sum. For this purpose, we're looking at what happens over a period of 5 tax years, 2 tax years on either side of receiving a lump sum.

    So if somebody breaches that £7,500 tax-free cash lump sum limit in the current 2019/2020 tax year, we'd go back to the 2 previous tax years when we're looking at increase in contributions and forward to the next 2 tax years as well. And again, this is part of the whole anti-avoidance provisions to prevent people splitting up a transaction into a series of steps to appear to avoid these limits.

    Again, looking at whether there's been a significant increase in contributions, so as Tom said, it can be not just the member increasing contributions, but also an employer increasing contributions. And that's a question we sometimes get asked about, particularly for people running their own limited company where they're in control of their remuneration and they're thinking about how they split up that balance between dividends, salary and pension contributions, taking money out via tax-free cash or withdrawal.

    But of course, you can have an increase in contributions that would be very significant that's got nothing to do with having received tax-free cash and those 2 things do have to be linked for these rules to come into play. So if we look at a common example, somebody’s pattern of  contributions might vary quite considerably from one year to the next. Then their normal pattern may well be paying £40,000 in one year, £20,000 in the next, because that's how their profits or bonuses arise.

    So the fact that somebody paid £20,000 last tax year, is paying £40,000 this tax year, doesn't necessarily trigger this condition. In this particular case, that is just because that is their pattern of contributions, so that is normal financial planning, that is fine.

    And again, if we're looking at ordinary employees, in a lot of businesses you get widely fluctuating bonuses, so if somebody has no bonus one year and a 35% bonus in the next year, their workplace pension contributions could naturally rise by more than 30%. And again, that is not linked to receiving tax-free cash, that is linked to the way that their bonuses are paid. So again, that is normal financial planning. That's not something that these rules are trying to catch.

    However, we do sometimes get queries about can we play around with these rules? And they are written in such a way that the order of transactions doesn't matter. So somebody might have a bunch of savings or possibly even take out a loan to pay increased contributions. And if as a result of doing that they can also take some additional tax-free cash and repay those savings or repay that loan, that can still get caught by the tax-free cash recycling rules.

    And a series of artificial steps doesn't in itself get you out of it being a problem.

    This can also happen in other situations. For example, somebody might have built up a pot of cash that they've earmarked to use for home repairs. What they might do instead is take some tax-free cash out of their personal pension and use that to pay for their home repairs instead. Then they rebuild their pension out of the money that they had previously set aside for those home repairs.

    Again, this is a series of artificial steps and if you ignore the artificial steps, what somebody has actually done is taken a pension commencement lump sum and heavily increased their pension contributions. And if that applies, they can be caught by the tax-free cash recycling rules.

    So the third step that you have to breach in order for pension tax-free cash recycling to be a problem, is that the cumulative amount of the additional contributions has to exceed 30% of the pension commencement lump sum. And again, if you want full details about that, it is covered in the recycling rules in Pension Tax Manual, but we'll summarize the complex interaction for you because we've got to look at these, as you'll hopefully remember, there are 2 different cumulation rules, the 12 months and the 5-year rule.

    So if we're looking today, in 2019/2020, we could well be looking at somebody who has increased their contributions up to today over the last 5 tax years by £3,000 a year. So the cumulative total of those increased contributions is now £15,000. You might think, well what's the problem there? Well the problem is, that back in the 2017/2018 tax year, they breached the £7,500 tax-free cash limits. If we look then over a cumulative period of 12 months, they actually took £20,000 of tax-free cash out.

    So you can see that the increased contributions by £15,000 over 5 years actually exceeds by a long way 30% of the total tax-free cash that they withdrew of £20,000 over that 12 month period. So again, we're looking here at how the legislation is drawn as an anti-avoidance measure to avoid people trying to disguise what they are doing by spreading it out over a series of split up transactions over what can be a lengthy period.

    The final point in order for tax-free cash recycling to trigger an unauthorized payments charge is that it must be pre-planned. So as the tax manual says, the individual must have intended from the outset to take a pension commencement lump sum, their tax-free cash, in order to enable significantly greater contributions to be paid into that scheme by themselves or by somebody on their behalf. So somebody on their behalf would typically be their employer.

    Also says however, that it is up to HMRC to prove that this is what they're doing. The onus isn't on the individual to prove that they didn't have an intention to pre-plan. The onus is on HMRC to show that the pre-planning took place.

    And finally, Pension Tax Manual also says that they don't expect many tax-free cash lump sums to be caught by this recycling rule. They're not going to be caught when they are part of an individual's normal retirement planning. And we suspect that the other reason that very few lump sums are caught is because the penalties for facilitating pre-planned tax-free cash recycling are significant once you get into unauthorized payments regime. So the fear of doing it is enough to discourage people from doing very obvious tax-free cash recycling.

    And now I'm going to hand you back to Tom who is going to talk about some situations which might or might not trigger the rules.

    Tom Coughlan: Thank you, Bernadette. I'm just going to go through a few examples which hopefully bring together the points that Bernadette had mentioned. It's important just to note that there are very rarely black and white answers when it comes to these kinds of examples. It would depend very much on the circumstances and how HMRC view it. So the examples that we've got here are based very much on the examples that HMRC does state in the Pensions Tax Manual.

    So take Client A for example, receives tax-free cash of £50,000 and their intention there is to use that £50,000 to pay off their mortgage. However, they subsequently receive an inheritance of £30,000 and decide to up their pension with that. So they've got tax-free cash, they've got an increased contribution. However, intent to recycle has to exist at the point you receive the tax-free cash or when you pay the increased contribution if that is before.

    So in this case, the tax-free cash was before the increased contribution. And at that time, their intent was to pay off their mortgage and not to recycle. So as long as it was easy to demonstrate that that was the case, then that shouldn't be recycling.

    So just to go through those 4 rules then, so the tax-free cash is greater than £7,500, there is a significant contribution increase, and 30% of the cash represents the increased contribution as well. However, the final rule, the pre-planning rule, doesn't apply in this instance, so that would be relatively straightforward to show that that is not lump sum recycling.

    Client B has paid £10,000 in an employee's pension scheme for a number of years. They also received tax-free cash of £25,000 last year. They then moved to a new employer and joined their pension scheme on the standard contribution basis, and because of that, their total annual contribution will now be £20,000. But again, to go through each of those 4 rules, the tax-free cash is greater than £7,500, there is a significant contribution increase, the contribution increase represents at least 30% of the tax-free cash that was received. But again, there's no pre-planning.

    The client should be able to show quite easily that the reason for their contribution increase was out of their control, it was because they moved to a new employer that paid greater contributions than their previous employer. So there is no link between the tax-free cash being received and the contribution increase. They just happen to coincide. So again, that should avoid unauthorized payment charges.

    Client C takes tax-free cash of £8,000 and they intend to pay that back into their personal pension, and assume the HMRC are able to demonstrate that as the case, they subsequently pay the £8,000 as a net contribution back into the pension so it becomes a £10,000 gross contribution that's on top of the usual contributions of £3,000 per annum. So to go through those 4 rules.

    Tax-free cash is just over £7,500, there is a significant contribution increase from £3,000 to £13,000, that represents 30% of the tax-free cash and HMRC are able to demonstrate that there is pre-planning. There probably won't be anything explicit, but there might be some circumstantial evidence that HMRC can rely on to prove that that is the case. As Bernadette said, the onus is on them to prove that there was intent to recycle that tax-free cash.

    So HMRC should be able to put together a case to show that that was recycling of tax-free cash and could potentially raise unauthorized payment charges.

    Client D is very similar to Client C. Most of the numbers are just simply halved. So £4,000 in tax-free cash with the intention of paying that back into their personal pension. They pay that back in as a net contribution, so £5,000 gross and that's on top of the usual contributions of £3,000. So the tax-free cash is less than £7,500 in this case but there is a significant contribution increase that represents 30% of the cash and there was pre-planning.

    In this case there is no unauthorized payment charge, because even though they are intending to recycle that cash, they didn't trigger the recycling rules by going over £7,500. So you need to not meet just one of those 4 conditions and the tax-free cash recycling rules will not apply.

    Moving onto income recycling, this is a much more straightforward topic than tax-free cash recycling. The best way to show this is with an example. In this case, a basic rate taxpayer who takes a £1,000 gross withdrawal for recycling back into their personal pension. Starting at the top and working around clockwise, so the client has £1,000 in their drawdown account. They take that £1,000 out as a basic rate taxpayer, £200 tax will go to HMRC. That leaves them with £800 as a net withdraw and they use that to fund their personal contribution.

    So £800 goes in as the net contribution that attracts £200 tax relief paid by the provider and then reclaimed from HMRC. So the personal pension box shows all they've done is move £1,000 of vested monies across £1,000 of unvested monies. And all that will do is make available tax-free cash on that £1,000. So it's tax neutral, but it does generate further tax-free cash when the client comes to access that fund.

    The limits are very small now, so as soon as you've done that, you've triggered the money purchase annual allowance and the maximum you can use to income recycling each year, and that would be £4,000 as it's tax neutral, it's not a spectacularly popular approach to pension planning.

    So moving onto the money purchase annual allowance, that restricts all kinds of recycling. But it was originally introduced to limit clients' options to avoid tax on their earned income that came in with Freedom of Choice. So take the example of someone earning £100,000 and just focus on the top £40,000 of their salary. So the tax on that, shown on the left-hand side, would be out of that £40,000 you would pay £16,000 income tax. That leaves £24,000 net and there would also be £800 national insurance as well.

    So out of that top £40,000 of their £100,000 salary, they would be left with £23,200. When Freedom in Choice came in, then that would have potentially opened up the route to divert that £40,000 to a pension and then if you're over 55, to take that out straightaway. Out of the £40,000, you could have taken £10,000 in tax-free cash.

    The remaining £30,000 would suffer £12,000 income tax. So that post tax position in relation to that £40,000 would be £28,000, so a big improvement on the left-hand side. The money purchase annual allowance now restricts that because as soon as you've accessed your pension, on the right-hand side, then the money purchase annual allowance applies. And the maximum you could use for that would be £4,000 each year.

    But as I said, the money purchase annual allowance limits recycling more generally, so income recycling is always limited because it always triggers the money purchase annual allowance and tax-free cash recycling is limited by if the money purchase annual allowance has already been triggered.

    So that is all the technical content we have for today, so we're just going to give you a quick reminder of our technical content that we have on the advisor site. So the most recent edition of TechTalk that we have is the January edition. There was a protection edition after that, but we'll just focus on the January edition which was our last pension edition. There's a wide range of articles there.

    The DB advice policy statement by the FCA, there's an article looking in detail at that. We have an article looking at the indexation of the lifetime allowance and how that might affect the decision as to when to crystallize benefits. Then we've got a detailed summary of the pension and IHT court case, the Staveley case, most recent developments in that. We also have a number of auto enrollment articles, important one looking at the April 29 step-ups in contribution to 8%.

    We have a new edition of TechTalk which will be on the website very shortly. Again, pensions-focused. So just to go through briefly some of the articles in that edition, so we have an article looking at the future of UK pensions tax relief and how that might change. We've got an article looking at money purchase death benefits and how a personal pension could potentially be used for estate planning following the recent death benefit changes. And we've got a death benefit article summarizing the technical questions that we get through the help desk on that topic.

    We've also got a summary of the defined benefit lifeboat, the pension protection fund, and we look at pension tax relief and how that fits into the income tax relief. Sorry, into the income tax calculation. So that will be promoted shortly and will be on the website in the next week or so.

    Other topics that we have, sorry, other resources that we have on the website, so we have a range of tools on the website. We have the carryforward calculator for 2019/2020. We've also got the previous carryforward calculator, the 2018/2019 calculations as well on the website, so that would enable you to go back and just look back at previous cases as we've had a few questions about that, could we have the old calculation on the website as well so we can go back and check that carryforward calculations were correct in previous years.

    We've got a salary, dividend and pension tool as well, so allowing owner managed businesses to look at different remuneration strategies and how the tax works on that. We have a tapered annual allowance tool that is embedded within the carryforward calculator now and in the future which would enable you now to calculate that and then transfer that into the carryforward calculation as well. And we have a salary exchange tool on the site also.

    We have some accredited CPD guides, we've got a wide range of retirement planning CPD guides on the site. These are very detailed guides. We also have small and mini CPDs. Whereas the comprehensive guides we recommend 60 minutes, some of the mini CPD guides should take 20 minutes to go through a range of topics.

    And we've also got the main protection topics covered in the CPD guides as well. In addition to that, we'll add retirement planning articles from our previous editions of TechTalk, downloadable as separate PDFs. And we also have our Master Class area as well, so the slides, the recording and the transcripts of our previous master classes are on the site as well.

    Okay then, so we'll just go through some of the questions that have been submitted over the website. I'll just read them out and decide whether myself or Bernadette will deal with them. Okay, so one question, so can you confirm that the MPAA does or doesn't apply if the client is drawing pension benefits from an occupational DB scheme, for example the NHS? Do you want to take that, Bernadette?

    Bernadette Lewis: Yes, so that's a relatively straightforward one. The Money Purchase Annual Allowance doesn't apply when somebody is taking a scheme pension from a DB scheme. It was very much an anti-avoidance provision introduced alongside Freedom of Choice which only applies to Money Purchase schemes. You do occasionally get somebody who has got both defined benefits and money purchase benefits, in which case you could end up with a situation where they are restricted by the money purchase annual allowance and what they can put into their money purchase scheme.

    Those restrictions don't apply to their DB scheme. And where they try and do both types of contributions, they end up with some complex interactions. But if somebody simply wanted to carry on accumulating benefits in the DB scheme, didn't want to contribute anything to their money purchase scheme, they would just have, in most cases, the standard £40,000 annual allowance. Or if they were caught by a tapered annual allowance, they might have a reduced standard annual allowance for the DB accrual.

    Tom Coughlan: Okay, thank you, Bernadette. Now a question, so what if you were looking to use carryforward? How does this affect the tax-free cash recycling? It doesn't have any impact. You look at the tax-free cash received, you look at the contribution paid, and it doesn't matter whether some of that contribution was covered by carry forward. It has no bearing. You just ignore the carry forward and just look at the actual contribution that was paid.

     Another question, essentially is it possible to increase the contribution just say by 29% and take tax-free cash of £7,400 and do this on a regular basis so as to just stay below the rules? Bernadette, do you want to deal with that?

    Bernadette Lewis: The legislation doesn't prevent you from doing that, but it's one of those things where you are starting to push into the areas where you are going outside of the spirit of the legislation. So we would tend to be cautious about doing things that the legislation is clearly designed to discourage.

    Certainly, one of the things that we saw with the money purchase annual allowance, we know it was introduced at £10,000, and when that was exploited, it was reduced to £4,000. So it's one of those things that at the moment the rules seem to be working as they are. And to be honest, once you get down to the limits that are allowed by the rules, there's not that much benefit from exploiting them on a long-term basis given the cost involved of doing it.

    Tom Coughlan: Great. Thank you. Another simple question, does tax-free cash from a final salary scheme have the same impact on recycling? Yes, it does. Tax-free cash is tax-free cash whether it comes from a personal pension or a final salary scheme. Another straightforward question, PCLS recycling, are you aware of any cases the HMRC has challenged under these rules? We're not aware of any, but that doesn't necessarily mean that they don't challenge them or that they won't in the future.

    Question for Bernadette perhaps. Are there any issues where a spouse's pension is funded from part tax-free cash?

    Bernadette Lewis: It could be caught because the rules do say that a third-party contribution can be caught by these rules. So it would be where you were trying to set up maybe series of artificial looking steps. So that you took tax-free cash, paid it to a spouse, and your spouse paid it back into your pension. In that case, the fact that the third-party contribution can be caught by these rules would, is there to catch those kinds of can we get around this by using artificial steps techniques.

    Tom Coughlan: Okay. Are there any other questions or anything that we haven't answered yet? More questions on DB schemes, that's something that we've already answered those. And any questions about the slides, the slides will go on the website with the recording afterwards. Let's see if there's anything else. Okay, another one perhaps for Bernadette. If a company director over 55 makes a significant employer contribution from the business and then takes tax-free cash, could this be deemed as PCLS recycling?

    Bernadette Lewis: If you manage to breach all 4 legs of the recycling rules, then yes, that could trigger them. They are carefully written so that the order in which you do things doesn't automatically get you around those rules. So you would have to look at the overall situation, look at the 4 rules, but you are only caught where you do breach all 4 legs including the pre-planning one which basically does allow you to do the kinds of ordinary pension tax, financial planning and pensions planning that you would expect to be able to do.

    Tom Coughlan: Okay, great. Thank you. A question on the money purchase annual allowance. Is it automatically triggered if tax-free cash is taken and no payments of income are taken? Just taking tax-free cash and then not taking any drawdown doesn't trigger the money purchase annual allowance if you just take tax free cash. Then yes, you are not subject to the money purchase annual allowance until you do receive some flexible income. So the money purchase annual allowance wouldn't apply, but of course the tax-free cash recycling rules potentially would.

    We have time for perhaps one more question. Bernadette, can you take multiple small tax-free cash in different years, then you stay under the £7,500 in order not to trigger the rules? Quite similar to the previous question you answered.

    Bernadette Lewis: Yeah, again, you would have to be careful. Because we've got the cumulative 12-month limit, so if you took £4,000 today, you'd have to make sure that you took no more than £3,500 for the following 12 months. So if that is something that you are looking at doing, you do have to watch for that rolling 12-month cumulation period.

    Tom Coughlan: Thank you. There's quite a few questions that we haven't had a chance to get to, so if we haven't answered your question yet, we will. We have your email address, so we will be able to respond to you either today or tomorrow. So, thank you very much. I'll just hand back to Paul now for closing comments.

    Paul Rutkowski: Great. Thanks very much, Tom and Bernadette. Pensions Recycling is a complex topic and it is important that advisors are aware of the rules, so that clients can engage in effective financial planning without worrying about being hit with tax charges. Hopefully this presentation has helped to consolidate your knowledge and remind you of some of the key aspects that you may need to consider.

    If you'd like further information on any of the topics covered, in the first instance, please speak to your Scottish Widows contact, or you can visit the Scottish Widows Advisor website to access our technical resources. As with our previous Master Classes, a recording will be placed on the advisor website for further review. CPD certificates will also be issued following today's presentation to those that have attended live.

    My thanks once again to Bernadette and Tom for taking us through the slides. Thanks to everyone that's joined on the phone and to the Master Class, there were loads of questions asked so great engagement. And as Tom mentioned, for those who we didn't get to today, we will issue an answer directly to you. That concludes today's presentation and thank you very much.

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