MSE News: Budget 2015: Pension lifetime allowance to fall to £1m

redbuzzard

madeinireland wrote: »

I plan to take the SIPP soon to help fund the period before I take the main pension. Am I right in thinking that as soon as I take the tax free lump sum from the SIPP then it's value at that point is fixed against the lifetime limit so that the remainder can continue to grow without affecting the remainder of my lifetime limit ?

Thanks...

That is my understanding. Crystallising your SIPP (capped drawdown before 6 April, or flexi-access drawdown in 2015-16) will help with your LTA headroom because the LTA does not go to £1m until 2016-17.

Because you use up LTA as a %age based on whatever the allowance is when you take the benefits (putting your whole SIPP into PCLS+drawdown counts as taking benefits to the value of the fund when you do it) you will have more LTA left after 5/4/16.

You would also be using up less LTA by doing it sooner if the fund continues to grow afterwards.

E&OE, that's just my take. I have yet to do an accurate projection of my own position vs. the new LTA (NRA for my DB, a linked DC section, and a Section 32 policy is in 2018-19) but it is fairly similar to yours, though I have already set the SIPP-cracking in motion a few days ago and it should happen today.

green_man

At what point is the £1M assessment made? Is this just when you draw from your pension or yearly, or continuous?

What happens if say your pot is worth £900K and fully invested in stocks/shares. You have a really good year and at end of year it's worth £1.1M, but then next year is really bad and it's down to £800K. Would seem hugely unfair to take 55% of that 100K above £1M.

redbuzzard

JamesD explains it well here.

http://goo.gl/uQEAlu

Orwell

green_man wrote: »

At what point is the £1M assessment made? Is this just when you draw from your pension or yearly, or continuous?

What happens if say your pot is worth £900K and fully invested in stocks/shares. You have a really good year and at end of year it's worth £1.1M, but then next year is really bad and it's down to £800K. Would seem hugely unfair to take 55% of that 100K above £1M.

Each time you crystallise a pension it sets a precentage of LTA. That percentage does not change with later LTA limit changes.

This means that because I took my DB pensions early when the LTA was £1.8 m - I will be less affected by the LTA reductions since.

It's also a reason to crystallise some of your pensions now, before the LTA reduces. As the precentage LTA will be smaller for the same monetary amount.

mike5678

I have a question on this, what about those of us who have a government pension as well as a private pension? How do they put a number on what your government pension is worth if there is no 'pot'?

kidmugsy

mike5678 wrote: »

I have a question on this, what about those of us who have a government pension as well as a private pension? How do they put a number on what your government pension is worth if there is no 'pot'?

TFLS + 20 x annual pension.

Obviously, in a saner world the "20" would be 30, or 35, or even 40. Huge financial crises sometimes induce sanity.

Orwell

Ironic that you call it a "Government" pension, since only the over-generous (aka stupid) taxpayer offers these type of pensions now to public sector staff.

However it is more correctly described as a "defined benefit" scheme. These can be public or private. However private ones are actually backed by real investments in a fund (these are not owned by the individuals directly). The public ones are just a massive open-ended liability on future taxpayers of over £1 trillion.

The rest of us have to live with "defined contribution" pensions (although many people have some previous DB entitlement as well from the old days..).

mike5678

kidmugsy wrote: »

TFLS + 20 x annual pension

Can you give a basic worked example of this? I don't quite follow

redbuzzard

TFLS =100K
Annual pension = 15k

TFLS + 20 x annual pension = 100k+20*15k=400k.

400k/£1m = =40% of LTA used, if this happens in 2016/17.

madeinireland_2

Sadly I can't take my SIPP just yet as I'm not 55 but I am 55 just before the end of next financial year 28th March in 2016 so hopefully I will be able to do it just before the new LTA comes in.