New pension changes - AA and LTA

peterg1965

I may be someone who could be affected by the recent changes to AA and LTA for 2014 onwards. I am slightly frustrated that there is no stability in pension legislation, it appears to be constantly changing and key financial decisions I made a few years back have now been bought into question.

I am 47 and in the Armed Forces final salary pension scheme (AFPS75) and I am also making significant personal pension contributions into a SIPP. My current pension value, according to the SPVA is £554,952 at the end of 2011/12 and my SIPP has about £100,000 in it currently, with annual contributions (including HRT relief) of about £22,300.

I predict that the value of my Final Salary pension will only increase slowly, as I am nearly at the top of my increment banding and the level of CPI is much greater than my annual payrise (it has been zero over the last two years and expected to be a modest 1% rise next year and the next) and my Annual Allowance is not fully used, even when adding my SIPP contributions.

The 'difficulties' begins if/when I receive a promotion which increases the amount of pension total value and will then take up a lot more of the AA (which I know I can utilise unused allowance froms the previous 3 years).

My understanding is that my final salary pension is valued at 20 times the annual pension, so if I recieve a £35K pension the value is £700,000. With the LTA being reduced to £1.25M that would leave me with £525K maximum that I could save into my SIPP before incurring a 55% tax charge.

My question is, at what point are my pensions valued for the purposes of LTA? Is it done once at crystalisation of the pension (which could be years apart for the SIPP and occupational pension) or how is this done? And once I crystalise the SIPP by taking it into flexible drawdown, is there a limit to how much the drawdown pot can grow to?

My current intention is to leave the Services at 53 in my current rank with an estimated pension of £40K (£800,000 value) at age 53, and to crystalise my SIPP at 55.

Is there likely to be an increase of LTA over the future years? (increase anually by RPI perhaps) or is this crystal ball territory?

If I am promoted my pension will increase markedly and this would mean a complete revision of the SIPP with the probability of diverting the funds into other investments that do not attract tax relief. There would be a risk of me going over the LTA threshhold.

This is a real minefield, but any comments appreciated.

peterg1965

I found some technical notes on the HMRC website which allude to a "Lifetime Allowance test" and when this is triggered. It is still very confusing though and doesn't appear to answer the questions I have.