LTA Calculation Question Please

leedsfan757

Hi there,

I would very much appreciate any and all answers to the following question from those who are far more learned on the subject of LTA calculations than I:

I am currently quite likely to exceed the newly announced reduced LTA of £1m on 5/4/16 and, if so, would consider applying for individual protection.

I say quite likely to exceed the LTA as it all depends on how this sum is actually calculated. I am fortunate to be in receipt of a military pension - the amount I receive will almost double when I reach age 55 and the pension department is able to produce evidence of this to HMRC if required.

However, if the pension income used for the LTA calculation in relation to any IP claim on 5/4/16 is based only on the pension in payment at that time (and not 4 months later when I reach 55) then I will more than likely not qualify for protection as I will fall short of the LTA.

Any thoughts please?

All the very best and thank you for reading this.

Good_bad_and_ugly

Multiply annual income by twenty and add AFPS EDP/lump sum when you have a 'benefit crystalisation event'.

Edit: Are you on 75 or 15, will you accrue benefits on 15 or do you have transitional protection? Are you leaving at an option point and working in a second career or leaving at 55?

coyrls

leedsfan757 wrote: »

Hi there,

I would very much appreciate any and all answers to the following question from those who are far more learned on the subject of LTA calculations than I:

I am currently quite likely to exceed the newly announced reduced LTA of £1m on 5/4/16 and, if so, would consider applying for individual protection.

I say quite likely to exceed the LTA as it all depends on how this sum is actually calculated. I am fortunate to be in receipt of a military pension - the amount I receive will almost double when I reach age 55 and the pension department is able to produce evidence of this to HMRC if required.

However, if the pension income used for the LTA calculation in relation to any IP claim on 5/4/16 is based only on the pension in payment at that time (and not 4 months later when I reach 55) then I will more than likely not qualify for protection as I will fall short of the LTA.

Any thoughts please?

All the very best and thank you for reading this.

The LTA calculation is only done at the point at which you start taking benefits from a scheme (crystallisation) and so if you take your benefits after 55, it will be the income you receive then that will be used to calculate what percentage of the LTA you have used (which could be over 100%).

Sorry I misread your question. I don't know what happens when benefits already in payment are increased.

jamesd

Individual Protection 2014 was based on the value of pension assets on 5 April 2014. The new protection will presumably be based on the value on 5 April 2015. The PDF gives the various calculation rules for the 2014 scheme.

Your military pension would be valued at twenty times the higher payment value.

If a lot of your pension value is based on defined contribution pension pot value you should also consider your ability to time when you crystallise the portions of that pot so that you time some during a market downturn to stay under the LTA. This can be useful if it allows you to make more pension contributions.

Good_bad_and_ugly

For completeness, AFPS LTA is valued at twenty times income plus EDP lump sum/gratuity.

leedsfan757

GoodBadAndUgly, coyris and jamesd I am really grateful for your replies, thank you.

I left the RAF 15 years ago and have since accrued a further company DB scheme, AVCs and a company DC scheme which attracts very generous employer contributions for minimal employer contributions.

As the military pension was in payment pre-2006 the factorisation is 25 times, unfortunately. Thanks jamesd for the heads up regarding the timing of BCEs.

So, in a nutshell, I am unlikely to be eligible for IP as the RAF element will be based solely on what is actually in payment on 5th April 2016, not what is due 4 months later?

Consequently, I may be wise to reduce my contributions to the minimum sooner rather than later?

Cheers.

Good_bad_and_ugly

757,

What is the statement from SPVA, and how close are you?

Under the circumstances, will your employer consider remuneration via other means? I know that Monarch considered it a couple of years ago.

(Less said about them the better..).

peterg1965

Maybe slightly confused, is the issue here that the OP has not had his AFPS tested against the LTA yet, as it was crystallised before April 2006? If it had been crystallised after that date it would have already been tested against the prevailing LTA at the time benefits were taken and a certificate issued by SVPA to state the % used?


AFPS will only be tested against LTA once (putting aside the age 75 test) even if the pension in being is uprated by CPI at aged 55, having been in place before this age?


I am crystallising my AFPS75 benefits in 6 weeks time at age 49, so this has a significant bearing for me.

Good_bad_and_ugly

Peter,

It isn't just the age 75 test, there are 11 or so BCE. If your 75 pension increases beyond a certain limit, the one that will mostly apply to you is the one relating to annual increases.

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM11104310.htm

If you have been awarded a war disability pension, bear in mind you get CPI increases from outset, not from aged 55.

More;

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM11102020.htm

leedsfan757

Thanks again guys,

Hi GBU, I received a statement from SPVA last month and military pension will be £17350 plus next August. As to how close to LTA limit, slightly over if LTA calculation takes account of RAF pension at 55 and current employer DB pension at 60, otherwise I am under on 5/6/16.

Yes, poor Monarch - legalised robbery for the long servers. No other alternative offered besides DC contributions I am afraid.

Hi peterg1965,

That is right, as the only pension I receive was in payment pre-2006 it has never been tested against the LTA so no certificate. I also do not know if this element should be measured against £1.8m?

I have several different pots so I understand these will be measured against LTA only at the time each is crystallised.

Cheers all.

peterg1965

Sorry for the thread jack OP.


Crikey, this is getting a lot more complicated than I thought! I have valued my pension at £770K, using standard 20X + Lump sum (~62% of the current LTA). It will not be uprated by CPI until 2020 but reading that HMRC note, it shouldn't trigger BCE3, as it is just indexed by CPI and not by another amount. Although this will not push me close to the LTA I have a SIPP and another occupational DC pension about to start and I assumed I had another £400K or so to use up. If my AFPS is tested again, that could cause me some bother!