LTA crystal ball question and advice

guymo

Very possible there is no answer to this question but I'll ask it anyway: what is expected to happen to the lifetime allowance for pensions in the next quarter century? Do we expect it to remain where it is in real terms, reduce further, or what?

A second question concerning my own situation. I have a defined benefit pension (that will be changing in the coming years for sure. As it stands, it probably won't hit the LTA but it could do if my salary increases or the LTA reduces in real terms. In such a situation, should I be wary of making additional pension contributions for LTA reasons? Or should I make my contribution decisions without concern for the LTA until the time when I might hit it comes?

Your_Hero

guymo wrote: »

Very possible there is no answer to this question but I'll ask it anyway: what is expected to happen to the lifetime allowance for pensions in the next quarter century? Do we expect it to remain where it is in real terms, reduce further, or what?

Don't know is the short answer. I would expect it to go up in the long run. The LTA has been reducing since 2011/12 from £1.8m and each time there has been a protection introduced for those who will exceed the reduced LTA so I would not worry too much.

A second question concerning my own situation. I have a defined benefit pension (that will be changing in the coming years for sure. As it stands, it probably won't hit the LTA but it could do if my salary increases or the LTA reduces in real terms. In such a situation, should I be wary of making additional pension contributions for LTA reasons? Or should I make my contribution decisions without concern for the LTA until the time when I might hit it comes?

There's not much you can do about the DB scheme. Additional pension contributions really depend on how close you will get to the LTA based on realistic assumptions, e.g. are you expecting a significant pay rise? The current LTA allows you to have £62,500 pension (no lump sum) from a DB scheme (£1.25m / 20), so depending on the scheme, your income, years of service, inflation on revalued pension benefits etc. you may be able to work it out roughly if you still have any room for extra contributions. Alternatively, if you have a spouse, you could use their pension allowance?

Have you filled your/your OH's ISA allowances? You could always use these in the future to make large pension contributions (and receive tax relief) if the LTA goes up, or you aren't actually that close to the LTA as you thought.

zagfles

Well it's possible the LTA will be abolished if the mooted flat rate relief on contributions happens. But it's obviously all speculation. See http://www.thisismoney.co.uk/money/pensions/article-2654080/Ministers-call-end-1-25m-limit-tax-friendly-pension-saving.html

guymo

Your_Hero wrote: »

Have you filled your/your OH's ISA allowances? You could always use these in the future to make large pension contributions (and receive tax relief) if the LTA goes up, or you aren't actually that close to the LTA as you thought.

This is really the question that I am mulling over: whether to keep investments in an ISA or to use a pension.

In years when my pay goes up, the nature of my DB pension means that I use up the vast majority of the annual allowance so pension contributions are out. In years when it doesn't, there's plenty of annual allowance to use. The question is whether there significant tax advantage to using a pension:

- I would benefit from 40% tax relief when contributing, though most of the money will most likely be taxed at higher rate when I draw it out. The future of taxation on pensions and income is of course uncertain. Presumably one would expect there to be *some* advantage to a pension for the foreseeable future? Should I be keen to take advantage of 40% relief while it's available?

- Some years I would be able to contribute enough to recover at least a bit of child benefit, which is an added incentive. Would a year like that make it a "no brainer" to make pension contributions?

- On the other hand the LTA may kick in at some point so maybe I shouldn't make such contributions?

Are there other things I should be considering?

All of the money we're discussing here is earmarked for 10-15 year minimum investment term, and I'm almost 42 so a pension doesn't really lock up the money for longer than I'd be comfortable with anyway.