LTA and Pension Sharing Order

crv1963

I am in the NHS 1995 Pension Scheme.


In 2012 my "pension pot" was calculated as having a Cash Equivalent Transfer Value of £321679 and was subject to a reduction of 40%- £128751, leaving £193007.


Given I have a life time allowance- currently £1m, do I calculate what I can put towards that allowance the original £321k or the new sum of £193 k?


As in once money has left my allowance pot can I build it back up or not? I do appreciate that in my case (or in all NHS cases) there is no real actual pot of money but a virtual sum of money for calculation purposes and that the LTA could be further reduced at the Chancellors budgets.


I do understand that my "pot" will have grown in size since 2012 as I have continued to contribute to it and also that I am very unlikely to actually hit £1m but am now looking to start a SIPP over a period of years so want a rough idea of what I am aiming towards.


Many thanks in anticipation,


CRV

stoozie1

Someone else will hopefully be along who knows more, but my understanding of the calculation for LTA purposes from the nhsbsa worked examples is that you use the formula:
(20xannual pension)+ lump sum


you don't use your cetv for this calculation.

Malthusian

As Stoozie says the CETV is irrelevant from a Lifetime Allowance perspective. It is 20x the annual pension plus tax free cash.

You mention a Pension Sharing Order in your title but not your post - it would be helpful to know the full story.

Generally it is better to hang on to a DB pension and share other assets instead because of the value of the guarantees - although this is slightly less of a problem because as the NHS scheme is unfunded, the ex will get a guaranteed pension of their own rather than just the transfer value to put into a personal pension.

However if you're in danger of breaching the LTA by the time you come to retire that changes the equation. If the benefits you transfer to your spouse would eventually have been hit by a Lifetime Allowance charge and higher rate tax, whereas they'll pay no lifetime allowance charge and basic rate tax, you're giving them something that's worth £80 to them but you're only giving up £45.

To answer your question, yes, if you transfer part of your pension to your ex you can build the pot back up again. Divorce can be highly tax-efficient for people with a Lifetime Allowance problem.

stoozie1

OP I'm assuming you have special class status/MHO membership?

crv1963

Hello


Yes I have MHO Status and the actual reduction was as detailed in my first paragraph- 40% transfer to my ex-wife £128751, leaving me £193007.


Using the 20x + lump sum my "pot" now stands at either 366k (using larger pension and smaller lump sum) or 341k (using smaller pension and larger lump sum). Either way it now appears to have recovered from the sharing order although clearly isn't as good as it would have been with no sharing order!

stoozie1

I think then your only cap on accrual is 45 yrs service or your 75th birthday.

Your TRS will give you your exact accruals year by year but you've probably checked that.

crv1963

Thank you for your help, if I work until I'm 58 I will have 45/80ths or go at 55 with 40/80ths. I have calculated that I would be better going at 55 and then starting a SIPP whilst taking my pension and also working via agency. I suspect that I would not be able to reach LTA as I would like to finally stop working age 62.

stoozie1

Although the figures are different, if the SIPP/NHS accruals did very well and LTA was an issue, the advice I was given on this thread: https://forums.moneysavingexpert.com/discussion/5695312 may give you some helpful pointers on how to avoid an LTA tax liability.

crv1963

stoozie1 wrote: »

Although the figures are different, if the SIPP/NHS accruals did very well and LTA was an issue, the advice I was given on this thread: https://forums.moneysavingexpert.com/discussion/5695312 may give you some helpful pointers on how to avoid an LTA tax liability.

Thank you Stoozie1 very informative.