{"id":453318,"date":"2022-07-12T17:19:36","date_gmt":"2022-07-12T16:19:36","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=453318"},"modified":"2026-02-12T11:43:28","modified_gmt":"2026-02-12T11:43:28","slug":"pension-recycling","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/pensions\/pension-recycling","title":{"rendered":"Pension recycling"},"content":{"rendered":"

Not to be confused with pension transfers, pension recycling can be a straightforward way to move money between schemes and maximise your tax relief. And who doesn\u2019t want extra bonus money for free?<\/p>

The basic idea is that you take money out of one pension and use it to pay into another scheme. This may seem counterintuitive \u2013 after all, why would you take money out of your pension only to put it straight back in? Well, it can offer certain tax benefits like double tax relief, provided you stay within HMRC\u2019s pension recycling rules.<\/p>

What is pension recycling?<\/h3>

Pension recycling is when you take money out of your pension and use it to make further contributions to another pension pot, benefiting from maximum pension tax relief<\/a>. <\/p>

Basically, you can recycle any sort of pension income, such as money you\u2019ve withdrawn flexibly from a defined contribution pension (flexi-drawdown pension recycling). <\/p>

However, pension recycling is mostly used to recycle some (or all) of your tax-free lump sun, which applies to the first 25% of a pension pot that you can withdraw from the age of 55 (rising to 57 in 2028) without paying income tax.<\/p>

How do I recycle my pension?<\/h3>

On the surface, pension recycling appears straightforward: you withdraw funds from one pension and pay them into another to obtain tax relief on the new contribution. <\/p>

Tax relief is available even without earnings on contributions up to \u00a33,600 gross per year (\u00a32,880 net), but contributions above this level require relevant UK earnings (such as employment or self-employment income) at least equal to the gross contribution; pension income and most benefits do not count.<\/p>

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Our expert says: What are the tax benefits of pension recycling?<\/div>\n
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\"By recycling money taken from your pension, it means you can receive tax relief on the funds twice. This is because you will already have received tax relief when you first paid the money into your pension. And by taking out money and putting it into another scheme, it\u2019s possible to get another bump from tax relief. <\/p>

Doing this means you can continue tax-efficient growth of your pot. And if you\u2019re recycling money from your tax-free lump sum, you won\u2019t have had to pay income tax on that money either. If you are recycling taxable income from your pension, any income tax you pay could be offset by this next round of tax relief. <\/p>

When you get into the weeds of tax avoidance and loopholes, it can be worth getting professional advice to make sure you don\u2019t break any rules. HMRC has some guardrails in place to try and stop people gaining an unfair advantage by abusing the system. But, efficiently managing your tax liabilities can be a useful part of retirement planning.\"<\/p>\n\n <\/div>\n <\/div>\n\n

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\n \n George Sweeney, DipFA\n <\/a>\n
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What are the pension recycling rules?<\/h3>

HMRC\u2019s pension recycling rules apply to recycling your tax-free pension commencement lump sum (PCLS). There\u2019s a different set of restrictions for flexi-drawdown pension recycling.<\/p>

According to HMRC, the rules are designed to prevent people exploiting pension tax rules to generate artificially high amounts of tax relief.<\/p>

You\u2019ll fall foul of HMRC\u2019s rules if all<\/strong> of the following apply:<\/p>