Pension Contribution Recycling Risk Calculator

Pension recycling is an anti-avoidance rule that prevents people from taking their 25% pension tax-free cash and immediately contributing it back to a pension to get tax relief again on the same money. HMRC imposes a 25% unauthorised payment charge if the rules are met.

The recycling rule applies if: (1) the pension commencement lump sum (PCLS) exceeds £7,500; (2) the increase in contributions exceeds £7,500; and (3) the increase in contributions is more than 30% of the PCLS received.

If HMRC determines recycling has occurred, the PCLS is treated as an unauthorised payment. The scheme member faces a 25% charge (and potentially a 15% scheme sanction charge). The total unauthorised payment charges can be 40–55% of the PCLS.

Yes. If contributions increase because your salary increased (not because of the PCLS), and this is well-documented, it is not recycling. The connection between the PCLS and the contribution increase must be direct. Employer auto-escalation is unlikely to be recycling.

HMRC looks at contribution increases in the 12 months before and 36 months after taking PCLS. A sudden spike in contributions within this 4-year window is a red flag. Gradual increases in line with earnings are lower risk.

You can, but you must be careful. The MPAA (Money Purchase Annual Allowance of £10,000) applies once you access flexibly — but PCLS alone (without drawing income) does not trigger the MPAA. However, recycling rules still apply to the volume of contributions.

PCLS is the tax-free cash you can take when first accessing a pension — generally 25% of the pension fund value, up to a maximum of £268,275 (lump sum and death benefit allowance, post-LTA abolition from April 2024).

Yes. Larger PCLS amounts make the 30% contribution increase threshold easier to breach. A £300,000 PCLS means any contribution increase over £90,000 triggers the 30% test. Documentation of the reason for increased contributions is essential.

Not directly — the recycling rule is specifically about PCLS, not drawdown income. However, taking flexible drawdown triggers the MPAA, limiting future money purchase contributions to £10,000/year, which changes the contribution strategy.

Keep: written evidence that contribution increases predated or were independent of the PCLS decision; evidence of salary increases, inheritance, or other income sources; pension scheme correspondence; and financial adviser file notes documenting the advice given.

HMRC applies the rules through self-assessment — schemes and members must self-assess. HMRC can investigate and challenge. In practice, clear genuine cases (e.g., inheritance received coincidentally) are defensible with documentation. Deliberate recycling strategies are very high risk.

The recycling rule applies to PCLS from any registered pension scheme — defined benefit or defined contribution. Taking the DB commutation lump sum and then increasing contributions to a SIPP within the window is within scope of the recycling rules.