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

marlot

Report that record numbers of GPs are retiring early as they've reached the LTA.

http://www.telegraph.co.uk/news/2017/04/06/mass-closures-gp-practices-force-250000-patients-go-elsewhere/

Malthusian

123Sandra wrote: »

I also think that setting this allowance against the final value of a pension pot, rather that the contributions made, makes it almost impossible to plan contributions to a scheme (and I'm thinking here of people with 20 or 30 years to go before retirement) - but it sounds as though most people also think that, but think that there is little that could be done about it.

Very true but there is something that can be done about it - most people become eligible to draw benefits 10 years or more before their actual retirement, and at this point it is possible to mitigate against the lifetme allowance.

It can be worthwhile to pay money into a pension scheme even if it gets whacked by the lifetime allowance charge - most obviously if you have a defined benefits scheme and/or employer matching contributions. In this case the planning is simple - hold your nose and do it. If you don't, then the options for saving money for retirement outside a pension are better than ever, thanks to enlarged ISA allowances and allowances for income and growth on unwrapped investments.

madeinireland_2

marlot wrote: »

Report that record numbers of GPs are retiring early as they've reached the LTA.

http://www.telegraph.co.uk/news/2017/04/06/mass-closures-gp-practices-force-250000-patients-go-elsewhere/

Although I am not a GP this is precisely why I am retiring early - expect to go in the next couple of months.

arrgee

madeinireland wrote: »

Although I am not a GP this is precisely why I am retiring early - expect to go in the next couple of months.

Likely to happen more and more in next few years. Seeing a lot of people in mid 50s retiring at our place as they are better off not working. Typically earning aroung £50K/annum having built up large funds over 30-40 years mostly thanks to company contributions they will get £45K/annum paying basic rate tax instead of higher rate tax and NI and be better off than working. Funny thing is the surprise from younger colleagues who are amazed at such committed people just leaving. Many would carry on working but for the LTA. Still another couple of years before I join them :beer::T:)

arrgee

Malthusian wrote: »

It can be worthwhile to pay money into a pension scheme even if it gets whacked by the lifetime allowance charge.

It can be, but the return is diminished and there is little incentive to do so. I suspect what will happen in the next few years is lots of people retiring at 55-60 having hit the LTA and then creaming the income off the top until they hit 75 after which it will be left for IHT purposes.

I think the policy is flawed in that it will discourage people starting pensions too soon in fear of hitting this limit in the future. A £1.8million pension pot is hard to achieve, whereas £1m can be done with £7K/annum for about 30 years.

Red52

Hi I am 60 yrs old and considering transferring my 2xend salary schemes into a SIPP. My 2x end salary schemes would pay circa 12k and 25k/annum and would have a transfer value of £325k and £850k.
Therefore, the value of the SIPP fund would be £1,175,000, clearly over the £1M limit. My question is could I then take 25% out of the SIPP tax free, thereby reducing the fund value below the £1M. Or does the 55% tax apply.

Triumph13

Red52 wrote: »

.
Therefore, the value of the SIPP fund would be £1,175,000, clearly over the £1M limit. My question is could I then take 25% out of the SIPP tax free, thereby reducing the fund value below the £1M. Or does the 55% tax apply.

The tax free cash is limited to the lower of 25% of the fund value or 25% of the LTA and it counts towards the LTA.
If you crystallised a £1.175M fund taking the tax free cash up front and putting the rest into drawdown then you would get £250k of tax free cash, the taxman would take £43,750 (25% of the £175k excess) and you'd be left with £881,250 in the SIPP that would be treated as taxable income as and when you withdrew it.

EdSwippet

Red52 wrote: »

Hi I am 60 yrs old and considering transferring my 2xend salary schemes into a SIPP. My 2x end salary schemes would pay circa 12k and 25k/annum and would have a transfer value of £325k and £850k.

Your current pension valuation for LTA purposes is £740k, and so reasonably comfortably below the current £1mm. The number you give are presumably CETVs. Multipliers of 27 and 34 don't seem out of line, but the first one could be a bit lower than might be expected.

If you take both, you will exceed the £1mm LTA, and face a 25% LTA excess tax charge on £175k. How much you would actually pay depends on when you take it, and in particular how much the LTA has grown with inflation.

With this in mind, you will want to be doubly careful before transferring out of your current schemes. Not only might you lose valuable benefits from those schemes, but you may also hugely increase your exposure to a 25% LTA excess tax charge. One option might be to transfer one of the pensions but leave the other intact. Careful calculation and projection required.

Red52 wrote: »

Therefore, the value of the SIPP fund would be £1,175,000, clearly over the £1M limit. My question is could I then take 25% out of the SIPP tax free, thereby reducing the fund value below the £1M. Or does the 55% tax apply.

If only it were that simple. Taking the 25% out is one of the points at which the LTA tax is computed, and of course it's computed on the whole sum, not the sum less the 25% PCLS.

The actual mechanism is that you pay 25% LTA excess tax and then normal income tax as the remainder is drawn. On the £1,175k example you give, if you crystallised the entire thing tomorrow you would receive £250k in PCLS, the government would take £43.75k in LTA excess charge, and you would have £881.25k left from which to draw taxable income.

Also bear in mind that there is a second rather nasty and spiteful age-related LTA test at age 75. This will capture any growth above the LTA on the remaining pension funds. Again at a 25% LTA excess tax rate

(...and I see that Triumph13 beat me to it, but at least our numbers agree!)