Not all recycling’s in the public interest!

recycling 2

Pensioners recycling

A lot of people are confused about taking money out of their pensions and the pensions industry isn’t being very helpful in encouraging people to have their money back (funny that!).

So when I read a headline in the Financial Times announcingUK pension freedoms open huge tax trap for over 55’s I smelled more scare tactics from those who would rather we kept money with them than spend it on ourselves – I was right.
The tax trap in question has “caught” 980,000 over-55s who took advantage of new pension spending freedoms between 2015 and 2018, with an irreversible reduction in their annual pension tax relief allowance from £40,000 to £4,000.

In practice, very few people who are drawing down money from their pension will be saving more than £4,000 pa and you would expect that most who do – will be accessing tax advice. This is a rich man’s problem and is almost certainly dwarfed by the amounts in unclaimed tax-relief that higher rate taxpayers miss out on when contributing to personal pensions.

I was pleased to see the comments below the article were generally robust. This is typical

This is boring nanny state speak. If you are able to invest £40k but unable to figure out the implications without the help of financial advisers then time to go peacefully to higher planes in the company of grim reaper with a scythe.


Putting this problem in some context

Generally speaking, people who are investing into pensions while drawing money from pensions are doing so as a tax arbitrage and not as an insurance against old age.

Nonetheless, it is important that people who do have pension pots and are over 55 are aware that the annual allowance that they have (normally £40,000) is reduced if people are found to be recycling money they are drawing from a pension back into a pension.

As soon as you start drawing more than the tax free cash available from your pension pot, you are seen to be “recycling”.  Sometimes this recycling has  value as in this idea from Debt Camel

pension recycling

But the reason that recycling is restricted is that for the most part it serves no social purposes other than to make the rich richer.  I doubt that many of Debt Camel’s customers are worried about losing the capacity to pay £40k per annum into their pension!

We currently have over a million people missing out on their promised retirement savings incentives because of the net-pay anomaly. Let’s get back to questions of social justice.


Arguing over the annual allowance misses the bigger point

That people are not aware of the technical issues around recycling is not the big issue. What is much more important is that many people are confused about whether they can start taking their pension when they are still at work.

The simple answer is that they can and that apart from the fact that the pension may be subject to a higher rate of tax than salary, there really isn’t any reason why someone over 55 shouldn’t have access to their money.

Indeed, many employers are keen to promote the freedoms people have , so that their mature workers can give themselves options which may include part time working, consultancy or early retirement.

What is surprising is that employers who are keen to offer flexible working practices, are paying so little attention to the opportunities their staff have to structure their exit from the workplace using the retirement savings plans that these very employers have sponsored.

The use of pensions for the over 55’s is perhaps one of the least understood areas of reward strategy and it doesn’t require employers to spend a lot to get right. We recommend that employers work with their staff’s financial advisers or provide financial advisers for staff to use. There are opportunities for advisers to be paid by employers without that payment being deemed a benefit in kind.

If the budget permits, an employer can commission pension consultants to provide a program of seminars and one on ones with employees in the retirement zone (effectively anyone over 50).

An alternative strategy may be to empower those in reward to become pension champions themselves. Learning the pension ropes may appear daunting, but there are plenty of training courses that can help. The Pensions Management Institute are particularly helpful as are the CIPP and the Learn Centre.

First Actuarial, like most pension consultancies, operates a program for the over fifties. We call it  “saving enough to stop work” and it runs at big companies such as Unilever. We are encouraging staff to create their own pension dashboards where they can see all their in retirement financial resources on a single screen. Even if this is no more than a spreadsheet word table or even a hand written list, the creation of a personal balance sheet and cash flow forecast is not as hard as it sounds!

Most people are frightened by pensions, but in our opinion, this fear is increased by the scaremongers within the pensions industry who would rather have us hang on to our money, than see it spent on retirement.

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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Not all recycling’s in the public interest!

  1. Robert says:

    If the budget permits, I wonder if the Tata Steel UK Personal Retirement Savings Plan (PRSP) which is run by Aviva, would consider (as Unilever already has) using First Actuarial’s program for the over fifties called “saving enough to stop work”?

    This is because although Aviva are an excellent pension provider with a wealth of information on their website, they don’t offer services like the ‘At Retirement 1-2-1’, ‘Money Talks webinars’ and ‘Webchat’ which are included in the program.

    Taken from the Unilever website:

    “Unilever wants to help you feel able to make good financial decisions as you approach retirement, so we have teamed up with pensions experts at First Actuarial to help answer the questions you might have about your finances and your pension when you retire.”

    “As you approach normal retirement from active service in the Unilever UK Pension Fund you will therefore be invited to attend a 121 ‘at retirement’ session by a member of the Unilever Pensions team. This session will be with one of the pensions experts at First Actuarial. It will last for roughly one hour and is free of charge”.

    Also, with regards to the ‘Money Talks webinars’……..

    “In this 30-minute session we explore the options available to you. Find out how to make your money work hard, and find out how Unilever and the Taxman can help you to achieve your saving goals in this interactive live meeting”.

    “Throughout the Money Talk you’ll have the opportunity to ask any questions you have in the group chat. If you want to ask anything more, or don’t want to share a question in the group chat, you’ll also have the opportunity to join a webchat to discuss your questions with a Money Expert from First Actuarial”.

    Alternatively, as there are “opportunities for financial advisers to be paid by employers without that payment being deemed a benefit in kind”, on this basis I wonder if Tata Steel UK would consider providing financial advisers for staff to use on their Tata workplace pension with Aviva?

  2. Robert says:

    Henry,

    I’m not sure if the Tata Steel UK Personal Retirement Savings Plan (PRSP), which is run by Aviva, is aware of the First Actuarial program for the over fifties called “saving enough to stop work”?

    Is it actively promoted to company pension schemes etc, and could it possibly run alongside or be included in the Tata PRSP?

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