Pay back CBA or take the pension LTA hit?

andyhe

I currently hold 2 DB pensions. I recently reviewed my pension statements from the last few years and realised that I'm likely to hit my LTA before retirement (around 59/60 years old, but likely earlier as my pay creeps up).

I currently also make small annual contributions to a SIPP to reduce my taxable income and avoid paying back child benefit allowance (CBA). I claim CBA for 2 children, so around £1800 a year. My adjusted net income (ANI) this year will be around £57300, so I see 2 options:

1. Avoid further exceeding the LTA. Pay back the CBA, costing me £1800, and also take the hit of 40% tax (the cash would be invested regardless); or
2. Make SIPP contribution to bring my ANI below £50k. I'd retain the CBA, but will almost certainly exceed my LTA before I reach retirement. I believe (under current rules) I could take a lump sum and pay 55% tax on the excess above the allowance (or pay additional tax if taken as part of the pension - effective 65% tax).

So which option would be the 'best'? From my own calculations, paying into the SIPP and taking the LTA hit would be better than paying back CBA, but this assumes pension rules don't change for the worse in the mean time - a big assumption!

Does my maths add up? Anything else I should be aware of? Apologies if I have misunderstood the rules - this is all new to me!

Also this isn't just a decision for this year; I'm likely to be in the same position with CBA for the next 15 years so need to work out a plan and stick to it (monitoring any changes to pensions and LTA).

Any help, pointers, ideas gratefully received.

Triumph13

Will you be a 40% tax payer in retirement? If not then keep paying into the pension as you effectively get 58% relief going in (40% tax plus 18% CBA clawback) but only pay 40% tax on the excess over LTA (25% LTA charge then 20% tax on the remaining 75%).

andyhe

Thanks for your reply. Could you explain the '18% CBA clawback' figure? Also, presumably if I'm hitting LTA then I'm looking at being a higher-rate tax payer in retirement?