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    • jim8888
    • By jim8888 5th Oct 17, 9:22 AM
    • 32Posts
    • 34Thanks
    jim8888
    LTA Questions
    • #1
    • 5th Oct 17, 9:22 AM
    LTA Questions 5th Oct 17 at 9:22 AM
    I turn 55 next year and can apply to take my two main pensions. I'm thinking of doing so because my DC pension pot will then be 500k and my Defined Benefit one will be around the same, meaning I'm sailing close to the wind on the LTA (I protected this at £1.032m)
    My question is, if f I crystallise both pensions at 55 do I "have" to take any more money from them, or can I just leave the remaiining sums untouched and invested? I will probably take the 25% tax free but as I'm intending to continue working I really don't need to draw down from the pension funds themselves at all, and would rather just leave them invested until I've spent the tax free lump sum.
Page 1
    • TcpnT
    • By TcpnT 5th Oct 17, 11:15 AM
    • 36 Posts
    • 21 Thanks
    TcpnT
    • #2
    • 5th Oct 17, 11:15 AM
    • #2
    • 5th Oct 17, 11:15 AM
    If you want to take the 25% lump sum from your DB pension I believe that you will also have to start drawing the monthly pension from the scheme. Don't think there is any way round this in most cases. Of course there is no DB pot - the LTA contribution from it is calculated as 20 x annual pension drawn.

    In the case of the DC pension you will have to crystallise to take the 25% lump sum but there is no compulsion to draw an income from the balance. With flexible drawdown you can take as much or as little as you like or nothing at all and allow it to accumulate. Bear in mind that if you do this you will likely be hit by the 2nd LTA test at 75 as the value of your fund in drawdown is likely to have risen substantially and the excess over the original starting value will be subject to LTA excess charge. If you have already used all your LTA at 55 this is pretty much inevitable
    • rjw4
    • By rjw4 5th Oct 17, 11:15 AM
    • 300 Posts
    • 181 Thanks
    rjw4
    • #3
    • 5th Oct 17, 11:15 AM
    • #3
    • 5th Oct 17, 11:15 AM
    What is the income for your DB scheme? You could take this and then keep the DC scheme uncrystallised? You can leave the DC scheme for as long as you want without taking money out (depending on which provider it is invested with).
    Do you have a reason to take the 25% tax-free cash?
    I am an Independent Financial Adviser (IFA). Any posts on here are for information and discussion purposes only and should not be seen as financial advice.
    • EdSwippet
    • By EdSwippet 5th Oct 17, 12:27 PM
    • 555 Posts
    • 519 Thanks
    EdSwippet
    • #4
    • 5th Oct 17, 12:27 PM
    • #4
    • 5th Oct 17, 12:27 PM
    You could take this and then keep the DC scheme uncrystallised?
    Originally posted by rjw4
    I would have thought that for someone right at the lifetime allowance, crystallising a DC pension earlier rather than later would produce a better result. Even where the money isn't needed immediately.

    After crystallising, any gains on investments made using the 25% lump sum become taxable, and the remaining 75% crystallised pension is taxed at marginal rate(*) when drawn. In almost(**) all cases, these rates in aggregate will be lower than 25% lifetime allowance 'excess tax penalty' followed by normal marginal income tax on any growth made inside the pension once above the lifetime allowance.

    (*) Until age 75 when the next and involuntary BCE is triggered. The way to defuse that is to withdraw enough from the pension at normal tax rates to ensure the lifetime allowance is not breached at age 75.

    (**) The exception would be where tax falls into the effective 60% band between £100k/year and £122k/year or so. Here, the 55% lifetime allowance 'excess' rate is actually preferable.
    • rjw4
    • By rjw4 5th Oct 17, 2:52 PM
    • 300 Posts
    • 181 Thanks
    rjw4
    • #5
    • 5th Oct 17, 2:52 PM
    • #5
    • 5th Oct 17, 2:52 PM
    I would have thought that for someone right at the lifetime allowance, crystallising a DC pension earlier rather than later would produce a better result. Even where the money isn't needed immediately.

    After crystallising, any gains on investments made using the 25% lump sum become taxable, and the remaining 75% crystallised pension is taxed at marginal rate(*) when drawn. In almost(**) all cases, these rates in aggregate will be lower than 25% lifetime allowance 'excess tax penalty' followed by normal marginal income tax on any growth made inside the pension once above the lifetime allowance.

    (*) Until age 75 when the next and involuntary BCE is triggered. The way to defuse that is to withdraw enough from the pension at normal tax rates to ensure the lifetime allowance is not breached at age 75.

    (**) The exception would be where tax falls into the effective 60% band between £100k/year and £122k/year or so. Here, the 55% lifetime allowance 'excess' rate is actually preferable.
    Originally posted by EdSwippet
    It's due to start rising so personally, I wouldn't crystallise everything now when you can get slightly more PCLS in the future (it may not be a lot but every little helps?). That's just my opinion though.
    I am an Independent Financial Adviser (IFA). Any posts on here are for information and discussion purposes only and should not be seen as financial advice.
    • EdSwippet
    • By EdSwippet 5th Oct 17, 4:26 PM
    • 555 Posts
    • 519 Thanks
    EdSwippet
    • #6
    • 5th Oct 17, 4:26 PM
    • #6
    • 5th Oct 17, 4:26 PM
    It's due to start rising so personally, I wouldn't crystallise everything now when you can get slightly more PCLS in the future (it may not be a lot but every little helps?). That's just my opinion though.
    Originally posted by rjw4
    Yeah, it's devilishly tricky to manage all round.

    One would hope that the pension investments would grow faster than inflation, in which case the pension will leave the LTA behind as it grows. That leaves one paying LTA 'excess tax' on the real growth but not the inflationary part, so a bit of an improvement. Of course, this assumes that the government doesn't cut the LTA back even further in future, so some considerable political risk there to add to the difficulties.

    The OP has a protected LTA, presumably IP2016, but the protection level is barely above the expected inflationary uplift in the LTA scheduled for April, and the protection may well become worthless by the April following as the standard LTA overtakes it. With hindsight, FP2016 could have been a better option here, but that ship may already have sailed -- although, well worth looking into if it hasn't.
    • The_Doc
    • By The_Doc 6th Oct 17, 4:24 PM
    • 26 Posts
    • 22 Thanks
    The_Doc
    • #7
    • 6th Oct 17, 4:24 PM
    • #7
    • 6th Oct 17, 4:24 PM
    FP2016 will no longer be an option if you have contributed into a pension scheme after April 5th 2016. If you "pot" was over £1m on that date, which you imply was the case, and haven't contributed into a pension scheme since and are willing not to do so in future, then FP2016 would be a good choice. It is still possible to claim FP2016.

    If you did crystallise all now (and that would mean taking your DB with any potential actuarial reduction), you could simply take drawdown from time to time to keep the gains below the remaining LTA. The drawdown would of course be subject to income tax at your marginal rate.

    Alternatively, you could part-crystallise your DC (and leave it all invested) with the intention of crystallising the remainder if the market turns down (which would use up less of your LTA). Crystal balls (bad pun intended) are useful in this case.

    The order you crystallise also has an impact. If you crystallise your DC first, any LTA charge (if applicable) would be paid by the DB scheme (called scheme pays). This could be worth considering if you have a good commutation factor in your DB scheme.
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