Understanding LTA charge and BCEs

Robert60

I am trying to understand the LTA charge and BCEs etc. before I decide to see an IFA.
I hope to retire July 2017 age 60. By then I expect to have £800k in my employer's DC plan, plus the ability to take a DB pension of £9k per year from a previous employer.
At 60 I will start to take the DC benefits, probably by going into drawdown, and also draw the DB pension. As far as I understand, this will use up 80% and 18% = 98% of the £1m LTA, so no LTA charge. I do not have any form of LTA protection. l expect the next LTA calculation to be when I'm 75, though I guess I may take out an annuity before then if I am feeling too old to manage drawdown!
I had thought about deferring the DB scheme to 62 percent so (index linked to 5% max inflation and would increase by 7.5% per year if I delay taking it) but I think that will take me over the LTA limit (even if the govt inflation-link LTA from 2018).
Is my logic sound, or are there any, or many, holes in it? All comments gratefully received, thanks.

Robert60

Correction, ...deferring the DB scheme to age 62 or so....

peterg1965

Not sure what your question is, but it sounds as though using up all of your LTA, if it remains at £1M, in 2017 is the way to go. If you go over there are some punitive tax charges, as you are probably aware.

kidmugsy

How much does your employer add to the DC scheme for each £ you add?

jamesd

Mostly I wonder why you didn't crystalise the DC pension before 6 April when the LTA was higher. Too late to do that now.

What you may be able to do instead is crystallise in bits when the market takes a dip, so the percentage used is lower at the dip prices. If there's a big dip between now and 2017 you may be able to get way below the LTA. If not you can always take benefits from only part of the pot and do the rest at the next 20% or so or 40% or so dip.

Robert60

Thank you for your replies and suggestions. I am still contributing to my Employers DC scheme as I get 10% Ers contribution, higher rate relief and salary sacrifice, and I might (just might!) work later than 60. Anyway I am now following the 'LTA - when to stop' thread as that's also a great help.

Triumph13

peterg1965 wrote: »

If you go over there are some punitive tax charges, as you are probably aware.

Whether or not the charges are punitive is entirely down to the tax rates you pay whilst contributing and in retirement. If you are a 40% tax payer when contributing and 20% when retired, then anything over the LTA that you drawdown / annuitize is tax neutral. If you get salary sacrifice benefits it can be beneficial to deliberately breach the LTA in these circumstances -as I expect to do.

Robert60

Thank you for the reply.
I have another question. Does anyone know if it is possible to crystallise a DB pension under BCE 2 (so that the LTA situation is calculated), but then delay taking any pension from it for several years?
I ask because one option I have is to delay taking my DB pension for many years, to give me a larger 'more secure/reliable' income in my later years: it will grow by 7.5% plus inflation. But, this will most probably end up with a large LTA tax charge.
I am not holding out much hope that this is possible, but I thought I'd ask. I may well ask the DB provider. And at some stage I must see an IFA.

Robert60

PS: I do expect to be a lower rate payer when retired, but higher rate now.

jamesd

It's very unlikely that any DB pension offers that facility but there's no harm in asking.

The most likely answer by far is that you will be told that you have to take the pension income as well and at a young age that would involve a prohibitively large actuarial reduction in the available income.

So do ask the provider but don't expect the answer you want.

Robert60

Thanks. I will ask the provider.