Life Time Allowance and Private Pension

Flugelhorn

I will probably exceed the LTA when I take my DB pension next year.

I have also got about 72K in what was AVCs - starting it seemed like a good idea at the time but now looks like I will get taxed ++ when I take anything out of it.

Is there anything else that I can do with it or just take the hit?

jamesd

Taking it early and getting a lower actuarially reduced pension may help because the DB lifetime allowance value is twenty times what you get. Getting less, sooner helps that calculation.

Some DB pensions offer the possibility to reduce your own pension to increase the one paid to a spouse after your death, called attribution. Again, lower pension out so lower lifetime allowance use.

It's also worth knowing that you're only entitled to a tax free lump sum on amounts up to the lifetime allowance.

EdSwippet

Have you investigated the assorted and still available LTA protections? If you have none but can qualify for any, that could give you a bit of breathing space.

The_Doc

You haven't said what the HMRC value to your pension pot is.

Have you taken Fixed Protection 2016 / Individual Protection 2016 to keep your LTA at £1.25M or whatever value it was on April 5th 2016?

Or even better IP2014 if your pension provision value was above £1.25m at 5th April 2014 (applications can be made up to the 5th April 2017)?

If you can't avoid the charge, then try and minimise it.

Is the AVC scheme connected to the DB scheme? If so, then the scheme could pay the LTA charge from the AVC pot (pre-tax). If not connected, then taking the AVC first and then taking the DB later could allow the DB scheme to pay the LTA charge (at your commutation rate), again pre-tax. Assuming the DB scheme has a "scheme pays" option.

jamesd

If you haven't yet registered for Individual Protection 2014 you have until the end of this year to get it done. It'll be very expensive to fail to do this if your lifetime allowance value was more than a million Pounds on 5 April 2014, unless you're one of those where the 2016 protection offers more because you're not far over £1.25 million.

"Individual Protection 2014 will give individuals a protected lifetime allowance equal to the value of their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million. You will not lose Individual Protection 2014 by making further savings in to your pension scheme, but any pension savings in excess of your protected lifetime allowance will be subject to a lifetime allowance charge."

If IP 2014 isn't applicable then look into IP 2016 instead, it only protects up to £1.25 million but the more recent 5 April 2016 value calculation date may be helpful. In some cases it might be better just to use IP 2016 if the value is higher on 5 April 2016 than in 2014. Takes working out how much you are over each of the two protected values then picking the least excess one. If over a million and under £1.25 million now go for 2016 because the 2016 value will be higher than the 2014 value and protect more. 2014 is more likely to be helpful if even in 2014 you were well over £1.5 million, or so far over £1.25 million that the increase in the two years was less than the amount over £1.25 million back in 215.

Flugelhorn

Thanks for comments and advice - should really think of taking pension slightly early, but actually quite like being at work at the moment :rotfl: though suspect things may change at work later in the year and I will look again at the options of going sooner.

jamesd wrote: »

It's also worth knowing that you're only entitled to a tax free lump sum on amounts up to the lifetime allowance.

Is that why the max is 250k now?

Re figures -
Pension valuation was below 1.25 in 2014 and pretty well spot on 1.25 April 2016 so will be applying for IP2016.

Flugelhorn

The_Doc wrote: »

Is the AVC scheme connected to the DB scheme? If so, then the scheme could pay the LTA charge from the AVC pot (pre-tax). If not connected, then taking the AVC first and then taking the DB later could allow the DB scheme to pay the LTA charge (at your commutation rate), again pre-tax. Assuming the DB scheme has a "scheme pays" option.

No was FSAVCs so not connected and yes apparently the DB scheme "pre pays" so may look at taking the AVC lump sum first

zagfles

How are DB pensions valued for IP2016, there seems to be conflicting information on usually reliable websites.

Is it:

a) 20 times the value of the DB pension had it come into payment on 5 April 2016 (ie with any relevant early or late retirement factors applied)

b) 20 times the value of the DB pension ignoring any early or late retirement factors

c) 20 times the value of the DB pension at NPD (note this could be significantly higher than b for some schemes which have increased the NPD in the past, but have preserved benefits accrued prior to the change at the previous NPD and apply a late retirement factor to this part when taking the pension at the new NPD).

ffacoffipawb

zagfles wrote: »

How are DB pensions valued for IP2016, there seems to be conflicting information on usually reliable websites.

Is it:

a) 20 times the value of the DB pension had it come into payment on 5 April 2016 (ie with any relevant early or late retirement factors applied)

b) 20 times the value of the DB pension ignoring any early or late retirement factors

c) 20 times the value of the DB pension at NPD (note this could be significantly higher than b for some schemes which have increased the NPD in the past, but have preserved benefits accrued prior to the change at the previous NPD and apply a late retirement factor to this part when taking the pension at the new NPD).

I believe it is a)

Flugelhorn

all the examples I have seen are based on taking pension at usual retirement age, with mentions of being able to take it earlier / larger lump sum to reduce the tax liability. It was calculated as 20 times pension + lump sum

zagfles

Well if I'm reading this right it would appear to be c:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm094310#CDB

"...the benefit should be calculated assuming, if the member has not already done so, that they have reached the age at which no reduction would apply under the scheme’s rules to the payment of an immediate benefit..."

So if, eg, a member has a DB pension where the NPD changed from 60 to 65, so part of the pension is based on a NPD of 60 and part on 65, then the age at which no reduction would apply would be 65.

So the late retirement factor applicable to the "NPD 60" part would be included in the calculation!