In danger of hitting LTA

saver_ali

saver_ali wrote: »

Thanks kidmugsy. I did look at illustrations for taking the DB pension early but the annual amount drops at a horrendous rate. If he took it next year, which is 5 years early at 60, it drops from £17k to £10k per annum.

I thought it was strange too, but it's from a newly available online tool provided by Mercers, who manage the pension. I will get in contact with them early next year to get a proper quote for retiring at 60. Thanks for your comments.

saver_ali

Triumph13 wrote: »

Definitely pay in for this tax year. Next year keep paying into work scheme to get employer's contributions, but maybe hold off paying to SIPP until near the end of the tax year just in case markets have performed incredibly well. Then when they haven't, pay the max in.


Once retired take the TFLS immediately to get any future above-inflation growth protected from the LTA charge (you'll need to move it into ISAs over several years). Then take the maximum possible without paying higher rate tax every year to run it down a bit to avoid a) higher rate tax once DB and SP on line and b) any LTA charge at age 75.


You've worked hard and saved hard so enjoy your retirement!

Thanks. That's very helpful, especially the suggestion about taking the TFLS straight away when he actually retires. I guess that means consolidating all the DCs into the SIPP to make it easier to manage.

I feel more comfortable with making this year's SIPP contribution now.

The_Doc

If he earns between £100K and £123K, then he is effectively paying 60% income tax on that, so that would be an even bigger reason to continue to contribute to the SIPP.

Even if you go over the LTA, you don't have to crystallise the whole lot immediately. You could hedge your bets by leaving some of the DC uncrystallised and crystallise it when the market drops (which it will but nobody knows when or by how much).

You should definitely check the penalties for taking the DB early as that will affect the valuation for LTA purposes. Normal actuarial reduction are in the region of 4-6% per year.

000145

saver_ali wrote: »

Thanks kidmugsy. I did look at illustrations for taking the DB pension early but the annual amount drops at a horrendous rate. If he took it next year, which is 5 years early at 60, it drops from £17k to £10k per annum.

Yes but you would have received £50k by the time he reaches 65! You don’t lose money by taking it early as your pension just stretches over more years. This is definitely worth thinking about if it stops you hitting the LTA limit. I am also 60 and am taking my pension early. What is the point of working for another 5 years and then paying 55% of my hard earned pension?

Brynsam

000145 wrote: »

Yes but you would have received £50k by the time he reaches 65! You don’t lose money by taking it early as your pension just stretches over more years. This is definitely worth thinking about if it stops you hitting the LTA limit. I am also 60 and am taking my pension early. What is the point of working for another 5 years and then paying 55% of my hard earned pension?

But the reduction factor is much higher than the norm. OP, check with Mercer now that the answer you are getting from this super whizzy online new tool is accurate. Either something is wrong with it, or you are entering something incorrectly. Trustees have to use reduction factors which give a reasonable outcome - and more than 10% a year reduction is about twice the norm.

Thrugelmir

saver_ali wrote: »

I’m worried that with reasonable growth he will soon exceed the LTA.

Ultimately markets fall back in line with actual company financial performance. Recent growth in the markets isn't mirrored by reality.

saver_ali

I've checked the original paperwork and there is supposed to be a 15% reduction by taking the pension 5 years early. Something is wrong somewhere!

There was another anomaly when Mercers took over management from my husband's ex employer. When I obtained a valuation from the employer 12 months ago, it was £12,400 per annum. The recent one online with Mercers is £17k. This is what has prompted my worry about LTA, because an extra 10% had been used up out of the blue.

I suspect the Mercer online figures are wrong, so will have to check.

Thanks everyone for your comments. My question about whether to put more money in the SIPP has been answered, and I will do that next week. He's not going to earn £100k so the 60% tax issue isn't an issue, but we still have scope to maximise tax relief this tax year, and will take advantage of that while we can!