Pension investment - recycling of cash?

[Oldandcobwebby]

I am 60 and living in the UK. I have about £50k in a current account that I would like to invest in a pension and not access until I am in my 70s. The complicating factor is that I have just finished employment in local government and I have a substantial lump sum from my employer's pension that I intend to invest in global funds. I understand fully that I cannot use my tax free lump sum for the new pension transaction because of the cash recycling rules, but can I claim tax relief on my new pension investment paid for from existing savings? (The lump sum from my employer's pension is paid into the same account that has my savings)

I think you need a financial advisor for this type of question.

You can’t invest savings into a pension unless you have relevant earnings.
No earnings means the maximum you can put into a SIPP / pension is £2880 per year which gets tax relief of £720.
If you have literally just ended employment, you can use 100% of your earnings since 6 April but that’s all for this tax year.

Just put your TFLS into an investment ISA over this and next tax year as you can only put £20k a year, so £20k now and £20k next April.

Any excess can go into fixed rate savings.

The only other option would be to buy a deferred Annuity with the £50k but that would definitely need a specialised IFA.

Thank you @BorgQueen . That clarifies things for me. I'm on the case!

You would still be caught by the recycling rules even if you invested from your existing savings, since it's clear that the lump sum has changed your financial circumstances, and your contributions would have increased. HMRC will look at contributions two years either side of receipt of the lump sum, so you could invest in a SIPP in the future, and use ISA's in the meantime.

Royal London has a useful guide to the rules which is worth reading:

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

It's aimed at advisers, but useful for anyone needing to understand the complexities.

She could add £7500 from her tfls no problem but it’s not an issue as she has other savings.
There has also never been a case of an individual investigated for ignoring recycling rules. Probably because nobody would be stupid enough to try it with a large amount.
We took tfls of £25k 2 years ago, DD needed the cash for a house deposit and the sale of my late FiL’s house was delayed, when we got the sale proceeds, that £25k got fed back into pensions, all be it straddling two tax years, it wouldn’t have fallen foul of the recycling rules because it was different money. We could prove that the tfls had gone to DD as a gift. The later inheritance was also provable. They wouldn’t have been able to prove it was ‘planned’ either.

Yes, I've often wondered how they would prove pre-planning in most cases... If there are no investigations, then arguably the rules are pretty pointless and just cause extra hassle and complexity.

I started withdrawing TFC in stages to feed into an ISA from age 55 so that there was never more than £7.5K per year, as I was still contributing to a work pension and had set up AVCs, thereby increasing the contribution level.