What are good strategies folr avoiding the LTA limit

Stochasticity

haf63 wrote: »

Just wondering what people who are expecting to hit the LTA limit are doing about it?
I have around a million in mine currently (mix of defined benefits and defined contributions) and with upto 10 years to go and making use of AVC's, I'm in danger of getting to 1.25m in the next few years.
Given there are many variables (eg retirement age, fund growth etc) and the fact that a mandatory 15% salary will continue to go into my fund, should I be reducing my AVC's etc to avoid getting to 1.25m at all costs?

Probably, but depends on the scheme and the exact nature of your circumstances. Other options, in addition to those already mentioned by others, include de-risking your defined contribution schemes to limit growth (offsetting this through non-pension assets if you have a specific overall asset allocation in mind), or crystallising your defined contribution schemes (ideally before 5 April 2014) if you are over age 55.

Are there any other tactics I can deploy as the tax and NI relief means its a lot better to grow my pension fund than take the cash.

The tax and NI relief on the way in is in large part if not entirely squandered if you then pay a 55% tax charge (or otherwise 40%-58.75% tax charge if taken as income) on the way out.

peterg1965

Hopefully this isn't a thread hijack, but it is about the LTA limit.

I have a DB pension (AFPS75) and considering applying for fixed protection. I am 47, have 5 years to run to crystallisation and am at the top of my pay band. If my DB is effectively 'frozen' from the 6 Apr 14, I understand the only accrual permitted is CPI. Does this mean it is automatically increased by CPI, if it does, there could be the anomalous situation where the DB value increases faster (with ixed protection applied) than via pay rises whilst remaining in, pay rises will be currently limited to 1% for the next two years.

I am predicting a DB valuation of about £870k in 2018 using a 1% salary increase per year if I remain a full member, and possibly a lot more if it increases by CPI every year if I opt for LTA fixed protection. This must be wrong?

fizio

Thanks to everyone who has provided some input.

The suggestion of 'opting out' to get the 'fixed protection' scares the hell out of me and I'm not sure what the benefit is given my fund is valued at £1m so opting out will mean it stays at £1m + cpi. I can see the point in opting out if the fund was closer to 1.5m but not at 1m.

I think i will simply adjust my AVC's such that my fund doesn't exceed the £1.25m limit and simply take the cash instead and invest elsewhere... My original plan was to simply use my max AVC limit every year to maximise the pension but at 55% tax above 1.2m its better to just pay the 40% tax and take the cash

gadgetmind

haf63 wrote: »

but at 55% tax above 1.2m its better to just pay the 40% tax and take the cash

It's likely to be at least 42% including NI and more (effectively) if you get any of the employer's NI rebated. There are also tax rates >40% including the nasty allowance claw back at just >£100k pa.

My projections show that I'm unlikely to exceed even the new lifetime allowance (no defined benefit for me) as long as I retire at age 55. As I won't be accruing any more SP once the new flat rate comes in, this sounds like a good time to knock it on the head.

grey_gym_sock

hoping this isn't a thread hijack either:

if 1 enters drawdown at age 55 (or whenever), with a pot worth 99% of the applicable LTA, taking a 25% lump sum, and then drawing an income of anywhere between nil and the maximum (or if it's flexible drawdown, with no maximum), ... then is there a further test that the LTA isn't exceeded at age 75 (or at any other time)?

if there is a further test, then is drawing enough income so that the remaining pot doesn't grow any more (between ages 55 and 75) what 1 needs to do to avoid it?

Stochasticity

grey_gym_sock wrote: »

hoping this isn't a thread hijack either:

if 1 enters drawdown at age 55 (or whenever), with a pot worth 99% of the applicable LTA, taking a 25% lump sum, and then drawing an income of anywhere between nil and the maximum (or if it's flexible drawdown, with no maximum), ... then is there a further test that the LTA isn't exceeded at age 75 (or at any other time)?

if there is a further test, then is drawing enough income so that the remaining pot doesn't grow any more (between ages 55 and 75) what 1 needs to do to avoid it?

Basically, yes, if you draw all growth as income, the drawdown pot doesn't increase, no LTA charge. Besides age 75, the growth of the drawdown pot since crystallisation will also be tested if part or all of the pot is used to purchase an annuity. It isn't tested on death.

Stochasticity

peterg1965 wrote: »

Hopefully this isn't a thread hijack, but it is about the LTA limit.

I have a DB pension (AFPS75) and considering applying for fixed protection. I am 47, have 5 years to run to crystallisation and am at the top of my pay band. If my DB is effectively 'frozen' from the 6 Apr 14, I understand the only accrual permitted is CPI. Does this mean it is automatically increased by CPI, if it does, there could be the anomalous situation where the DB value increases faster (with ixed protection applied) than via pay rises whilst remaining in, pay rises will be currently limited to 1% for the next two years.

I am predicting a DB valuation of about £870k in 2018 using a 1% salary increase per year if I remain a full member, and possibly a lot more if it increases by CPI every year if I opt for LTA fixed protection. This must be wrong?

If you remain an active member, you'll accrue further years, which will increase benefits by a lot more than just pay rises alone. If you elect for fixed protection, to avoid future benefit accrual, you'd most likely have to opt out and so not accrue further years.

Neverland

Stochasticity wrote: »

If you remain an active member, you'll accrue further years, which will increase benefits by a lot more than just pay rises alone. If you elect for fixed protection, to avoid future benefit accrual, you'd most likely have to opt out and so not accrue further years.

I'm thinking the effect of the much lower LTA will be that its not tax effective to build up a final salary pension worth more than £60k a year?

Just curious.... I was too young to have ever been offered one myself

gadgetmind

I reckon the ever-dwindling LTAs are to try and punish civil serpents with their fancy final salary pensions and anyone with a private pension that gets up there is just collateral damage.

Neverland

gadgetmind wrote: »

I reckon the ever-dwindling LTAs are to try and punish civil serpents with their fancy final salary pensions and anyone with a private pension that gets up there is just collateral damage.

I think I read somewhere recently that 75% of public sector employees have final salary pensions, while only about 15% of private sector employees are in active final salary schemes; maybe 3-4m are self employed

So there are 30m working people in the UK; I think about 6m work for the state one or another

That makes:

4m public sector workers in final slary schemes
3m private sector workers in active final salary schemes

I think decreasing the LTA is just an attempt to limit tax relief for the already wealthy, its fair enough really

I would like to make a bet that the LTA will down to less then £1m in the next parliament