Taking DB early to avoid LTA charge

marlot

I'm 52 and planning to retire at 55.

I'm lucky enough to have a mix of DB and DC pensions.

After I paid off my mortgage, I put a lot of money into pensions (about 2/3 of my salary over a sustained period). When I started that, the indications were that the LTA was rising (and indeed, it did initially). But I'm now getting squeezed by the reducing Lifetime Allowance.

I didn't have enough saved to qualify for individual protection 2014, but will for IP 2016 if it is offered.

I created a spreadsheet showing the before and after-tax result of taking my DB pensions 5 years early (at 60) and 10 years early. To my amazement, they all total to about the same amount after tax, assuming I live to 90. Taking it at 60 (or 55) also brings me below the £1m LTA.

What other techniques should I also be thinking about? I had two ideas:

• I have an AVC associated with one of my DB pensions, so am asking the scheme administrators if I can take the AVC as a tax free lump sum of the combined pension
• As an alternative to taking the DB pensions early, I could take the optional lump sum - I realise this is normally poor value for money, but does it help reduce below the LTA in marginal cases like mine?

Any other ideas appreciated!

kidmugsy

With the DC pensions you could use market timing: sell investments when the markets are down, withdraw money, reinvest in ISAs or outside tax-shelters, hoping for a rebound.

kangoora

kidmugsy wrote: »

With the DC pensions you could use market timing: sell investments when the markets are down, withdraw money, reinvest in ISAs or outside tax-shelters, hoping for a rebound.

If you do this and happen to sell at a loss, make sure to register for CGT relief with HMRC or you lose it after a period of time.

jamesd

Better not to take the DB pension early but to take some of the DC initially and the rest during a down market. There's a very extensive discussion of this in the topic LTA Protection.

As well as the possibility of using the AVC for the 25% lump sum of th whole pot, since the start of the tax year you also have a legal right to transfer the AVC to another pension scheme, so you can include it in your timing efforts.

You might usefully look at VCT investing for money that isn't appropriate for pension contributions now.

kangoora, money inside a pension or ISA is not eligible for CGT relief, nor subject to CGT on gains.

ffacoffipawb

kangoora wrote: »

If you do this and happen to sell at a loss, make sure to register for CGT relief with HMRC or you lose it after a period of time.

There is no CGT relief for funds in a pension as there is no CGT applied in the first place.