Pension pot limit - when is it calculated

jamesd

GoGas wrote: »

Person has 2 pension pots - a final salary and seperate SIPP. The final (USS flexible retirement) salary will be taken in April 2015 and and equates to 71% of the LTA of £1.25m. If the SIPP (270k) has a BCE in 2016-2017 this will the % of LTA be calculated against the £1m LTA in force then? I.e. 71%+27%

Yes, the SIPP will use the lower £1m of 2006-17.

GoGas wrote: »

Presumably if similar transition rules occur for change in LTA as did for previous LTA changes the individual may be able to protect their LTA at £1.25m providing they pay nothing in after March 2016 and leave SIPP grow more.

Yes, there are protections, haven't seen the details yet but they may have been mentioned somewhere in the documents.

I agree with kidmugsy's suggestion. the sooner you do it, the les growth there is. But even better, if you are 55 already, start capped income drawdown no later than 5 April 2015 on at least some of the SIPP pot. This is because:

1. No new capped drawdown can be started from 6 April 2015 onwards, just the new flexi-access instead.
2. With capped drawdown you cna take out the initial 25% tax free lump sum then also the GAD limit amount each year without triggering a reduction in the pension contribution limit from £40k to £10k. With flexi-access just the 25%.
3. You can recycle the pension income to get pension tax relief on it again.
4. There are limits on pension recycling of the pension tax free lump sum so don't do that for at least two full tax years after the tax year in which you take the lump sum. Or read the rules and follow them in some other way.
5. The lifetime allowance would use this year's £1.25 million for its calculation if you crystallise it all this year.
6. No restrictions on more pension contributions and you can switch to flexi-access drawdown whenever you like after it is introduced.

jamesd

FBF2007 wrote: »

So I am clear, in the scenario where I have a pension pot of £1m in 2018 and trigger a BCE on the full £1m (taking £250k as lump sum and then leave the £750k invested for drawdown) I assume then I have used 100% of my LTA.

Say I leave the £750k untouched for a decade and grow it to £1.25m before I start to drawdown then am I correct in assuming that the additional £500k growth is not subject to the LTA and the drawdown will just be subject to income tax?

Both paragraphs are correct.

Once the money is in a crystallised pot there is no more BCE until the one at age 75 that would catch any growth until then. You can avoid triggering that one by taking out the money faster than it grows, so its value at age 75 is no higher than at the time of the original BCE.

FBF2007 wrote: »

If this is the case then I'm assuming I need to trigger the BCE as soon as I hit £1m (and over 55) even if I don't want to access the pension at that time?

No. Do it now, in 20014-15, don't wait.

See my reply to GoGas about capped income drawdown. If you wait you lose that and you also risk more growth before you really need it. Better to get it done today at today's £1.25 million.

There is some risk from doing it now, the market might drop tomorrow leaving less of the BCE used if you'd waited. It'll certainly drop sometime. If you knew when you could wait but since you don't know when it's better to get it done ASAP.

FBF2007 wrote: »

Can you also expand on how the check at 75 works? Assuming a slight modifcation to the scenario above then if I'd been able to hold the £750k flat for 20 years by only making drawdowns each year equivalent to an annual growth of £40k then I would have had the orginal pot of £1m plus £800k growth. Would that be subject to any additional tax at 75?

Take the value in the pot at 75, subtract the value at 75. Don't get caught, take out the money as fast as either using basic rate band income tax allows and/or using VCTs to help small businesses and yourself via the 30% income tax relief you get.

kidmugsy

GoGas wrote: »

This route presumably would be effectively a BCE on SIPP. .... the ideal would be crystallise soon, make no contributions and let whole grow tax free and then tak the 25%TFLS sometime in next 10 years.

I've always thought of crystallisation and taking the TFLS as being essentially the same thing. Maybe I'm wrong. Anyway, in your shoes I might want to whip out the TFLS before Balls, or someone else, puts a limit on how much you can take tax-free. Further, I like flexibility. In your shoes I'd want to keep open the possibility of making more contributions. Who knows how useful that might prove, if only for effectively bequeathing the capital tax-efficiently?

EdSwippet

jamesd wrote: »

...No. Do it now, in 2014-15, don't wait.

See my reply to GoGas about capped income drawdown. If you wait you lose that and you also risk more growth before you really need it. Better to get it done today at today's £1.25 million...

Excellent information, James. Thanks.

Do you know if this can work for anyone aged 54 and 7 months? There's a hint here that suggests one might be able to finagle a BCE six months before age 55:

The earliest you can take the lump sum is six months before your pension becomes payable

However, I've not seen this elsewhere, so not sure of accuracy.

(Can you guess my age?)

jamesd

It can't work at 54 and 7 months because you're not allowed to take any pension benefits before 55, including the lump sum.

fizio

jamesd wrote: »

It can't work at 54 and 7 months because you're not allowed to take any pension benefits before 55, including the lump sum.

Is that 100% accurate as I am pretty sure I can 'retire' from age 50

jamesd

It's accurate for standard pension plans but there are people with preserved younger ages at the previous minimum of 50 and sporting or similar plans with even younger ages. If your plan says 50, believe it.