Generic quick question on Transfers into LGPS

monkeyman1974

Very grateful for any help / links on the following.

Say - I had a private sector money purchase scheme, that I had made contributions in of say £100,000 and now had a transfer value of £200,000.

Say - I transfer into LGPS and it purchased a pension of say £20,000 (just for instance, will naturally very by age)

From the perspective of my lifetime allowance of c£1m would the contribution value still be classed at £100,000 (ie the amount I have had tax relief on) or would it reflect the investment gain to £200,000; or indeed something different (perhaps relating to the £20,000 and an implied annuity rate).

Thank you very much (and appreciate I might need to take specific advice).

Brynsam

For defined benefit pensions, the value for LTA purposes is normally treated as 20 times the starting level of the pension (plus the actual amount of any tax-free cash taken).

If your transfer in buys you £20,000 of pension (and £200,000 won't buy you anything like that, by the way), then for LTA purposes that is 'valued' at £20,000 x 20 = £400,000. It will increase each year as your DB pension builds up.

Alibert

It's 200k , so you will have used up just under 20% of your LTA

(200,000 / 1,000,030 = 20%)

monkeyman1974

Brynsam wrote: »

For defined benefit pensions, the value for LTA purposes is normally treated as 20 times the starting level of the pension (plus the actual amount of any tax-free cash taken).

If your transfer in buys you £20,000 of pension (and £200,000 won't buy you anything like that, by the way), then for LTA purposes that is 'valued' at £20,000 x 20 = £400,000. It will increase each year as your DB pension builds up.

Hi, thank you. Fully acknowledge the annuity rates look generous. I'm 40 so there will be an element of my pot growing faster than RPI, hence the generous rate.

monkeyman1974

Alibert wrote: »

It's 200k , so you will have used up just under 20% of your LTA

(200,000 / 1,000,030 = 20%)

Thanks Alibert - I must admit I prefer your answer to that saying £400,000 (which is indeed the calculation on the LGPS website)..


I rather thought it would be this, albeit was hoping it was only going to be £100,000.. Is there any guidance confirming it would be £200,000 used? The LGPS website is silent. I was going to call HMRC who are normally quite useful.


I might have to avoid transferring any more pots in and crystalising higher transfer values - I am making an assumption that the pot will be what I've paid in, not what the value is now (massive assumption)

Brynsam

Alibert wrote: »

It's 200k , so you will have used up just under 20% of your LTA

(200,000 / 1,000,030 = 20%)

Not if it is transferred to a DB pension arrangement and converted into pension.

£200,000 won't buy a pension of anything like £20,000. Use a more realistic figure and you'll get a more accurate take on how much LTA is used up.

Dox

monkeyman1974 wrote: »

Thanks Alibert - I must admit I prefer your answer to that saying £400,000 (which is indeed the calculation on the LGPS website)..


I rather thought it would be this, albeit was hoping it was only going to be £100,000.. Is there any guidance confirming it would be £200,000 used? The LGPS website is silent. I was going to call HMRC who are normally quite useful.


I might have to avoid transferring any more pots in and crystalising higher transfer values - I am making an assumption that the pot will be what I've paid in, not what the value is now (massive assumption)

The answer may be preferable but it's wrong!

The LGPS scheme is silent because it doesn't apply. Once you transfer in to a defined benefit scheme, and the transfer is converted to extra pension in the scheme. the amount you transferred in becomes irrelevant for LTA purposes. Your LTA calculation in relation to the DB scheme is based purely on your DB pension.

If you think about it, how could anyone keep track of how your transfer in 'grew' between the time you transferred it into the scheme and the time you come to draw your benefits?

monkeyman1974

Dox wrote: »

The LGPS scheme is silent because it doesn't apply. Once you transfer in to a defined benefit scheme, and the transfer is converted to extra pension in the scheme. the amount you transferred in becomes irrelevant for LTA purposes. Your LTA calculation in relation to the DB scheme is based purely on your DB pension.

If you think about it, how could anyone keep track of how your transfer in 'grew' between the time you transferred it into the scheme and the time you come to draw your benefits?

Thank you for that, your explanation makes sense. In my example all I would know is, I had £100,000 of gross contributions, that "pot" grew to £200,000 which is the amount that drops into the LGPS. The performance of that pot is largely moot, as it is a cash payment from my old DC scheme into the LGPS; which (generously) puts a 10% annuity rate on it (as before age comes into this). I'm not arguing rights and wrongs, just not looking to chew my allowance up, as I'm now accruing also. I may as well leave other DC pots (from other jobs) where they are, and just buy an annuity at the time of retirement - from a tax perspective (who knows about investment performance)..


I appreciate your answer, its very useful

Alibert

But won't the transfer itself be a cystalisatiin event ?

Dox

Alibert wrote: »

But won't the transfer itself be a cystalisatiin event ?

Not unless it is to an overseas scheme (a QROPS).