Life Time Allowance >>> Delay crystallisation until April 2018 or later?

Sterlingtimes

Does the once per year indexation increase in LTA create a time of year judgment to be made for the cystallisation of larger funds?

It seems now that I would avoid crystallising my funds until the new tax year.

For cash funds a longer deferral may be appropriate where the interest received on the funds is lower than the indexation.

EdSwippet

Sterlingtimes wrote: »

Does the once per year indexation increase in LTA create a time of year judgement to be made for the crystallisation of larger funds?

Broadly, it seems yes. By waiting you could receive a larger PCLS, an extra up to £7,500 assuming the LTA rises to £1,030k.

The pressure here probably depends on how close to the LTA you are, or how far over it. If over then waiting saves you the full 25% of the increase in reduced LTA penalty tax. If under, it gets you an up-rate in the PCLS. That's worth something to you, but somewhat less than avoiding the LTA on the same sum would save.

Of course, the argument to delay can be applied year after year, in which case you'll never take the pension at all(!), so at some point you have to take some sort of plunge. Crystallising part of it and leaving the rest would split the problem, but it also splits the benefit so that's not a cure-all.

As for holding low-growth cash funds... well, okay, but I'd venture that a pension isn't the right place to hold cash for any long term. They would be outpaced by LTA rises, but only because they're being outpaced by inflation. That's not going to be a winning strategy!

Malthusian

If you're considering crystallising in February and you're likely to have an Annual Allowance problem, it probably is worth waiting a couple of months. Any other time of year and you have to consider the fact that the Lifetime Allowance only goes up by CPI, while private pension funds should be expected to increase by more than CPI if invested for the long term - even if you can't predict what they'll do from one year to another. (As will active DB pensions, and possibly deferred DB pensions depending on how they're revalued.) The increase in the Lifetime Allowance could easily be cancelled out by the increase in the pension fund.

Depends on how big the fund is and the reason for crystallising - whether it's purely trying to manage the LTA charge or whether you actually need the money.

peterg1965

EdSwippet wrote: »

assuming the LTA rises to £1,030k.

I don't think there is any 'assume' about it. It's in the budget and LTA is rising by 3% CPI from 6 Apr 18.

EdSwippet

peterg1965 wrote: »

I don't think there is any 'assume' about it. It's in the budget and LTA is rising by 3% CPI from 6 Apr 18.

Good point, thanks.

It seems that I had become so used to doubting that this would ever happen that weasel words such as 'assume' float off my fingers and onto the keyboard automatically now...