Thoughts ahead of first annual SIPP review

fjh

Reluctantpensioner wrote: »

I think you need a serious look at LTA risk and your strategy to handle it.
You have 12 years of pension growth ahead of you before the 75 limit.
Here is a very rough sum: £885000*((1+1.5%)^12)=£1058122
LTA is index by CPI, so if your funds perform 1.5% better than CPI, you will be over the LTA limit.

I am at a similar place to you (two years older, and retired) and started a major plan to move SIPP funds to ISA, to keep my pension from the taxman.

That’s a good point thanks - will bring up at meeting with IFA .

fjh

Reluctantpensioner wrote: »

I think you need a serious look at LTA risk and your strategy to handle it.
You have 12 years of pension growth ahead of you before the 75 limit.
Here is a very rough sum: £885000*((1+1.5%)^12)=£1058122
LTA is index by CPI, so if your funds perform 1.5% better than CPI, you will be over the LTA limit.

I am at a similar place to you (two years older, and retired) and started a major plan to move SIPP funds to ISA, to keep my pension from the taxman.

Got me thinking now !! When i TF final salary Pen ( July 2018) to SIPP value was 924k- withdrew 36k for home improvements - + fee's + 'buy in cost's- present value 885k- I pay in 7k pa into AVC
QUESTION is LTA calculated on the 'gross' value- i.e the highest value pension is or net value?
I will be looking to start drawdown of app 28k pa in either 2or 3 years SHOULD I BE CONCERNED ??

zagfles

fjh wrote: »

Got me thinking now !! When i TF final salary Pen ( July 2018) to SIPP value was 924k- withdrew 36k for home improvements - + fee's + 'buy in cost's- present value 885k- I pay in 7k pa into AVC
QUESTION is LTA calculated on the 'gross' value- i.e the highest value pension is or net value?
I will be looking to start drawdown of app 28k pa in either 2or 3 years SHOULD I BE CONCERNED ??

LTA is valued at "benefit crystallisation events". If you google LTA BCE you'll find loads of helpful articles (mostly aimed at IFAs but quite understandable, usually in plain English and any acronyms can be easily googled).

How did you take the money out? I presume you partially crystallised and the money was the tax free cash on the part you've crystallised, so your SIPP should now be in two parts - a crystallised fund and an uncrystallised fund? You should have a statement from when you crystallised telling you the % of the LTA you used.

I don't think you need to be too worried, if you crystallised it all now you'd be below the LTA, you'd then just need to make sure you draw enough so you don't get hit by an LTA charge at 75 (there's a second test at 75 on the growth of crystallised funds)

Your IFA should have discussed LTA issues with you when you transferred the DB. LTA is far worse for DC than DB, and as you're close to it it should have been an important consideration in the decision.

fjh

zagfles wrote: »

LTA is valued at "benefit crystallisation events". If you google LTA BCE you'll find loads of helpful articles (mostly aimed at IFAs but quite understandable, usually in plain English and any acronyms can be easily googled).

How did you take the money out? I presume you partially crystallised and the money was the tax free cash on the part you've crystallised, so your SIPP should now be in two parts - a crystallised fund and an uncrystallised fund? You should have a statement from when you crystallised telling you the % of the LTA you used.



I don't think you need to be too worried, if you crystallised it all now you'd be below the LTA, you'd then just need to make sure you draw enough so you don't get hit by an LTA charge at 75 (there's a second test at 75 on the growth of crystallised funds)

Your IFA should have discussed LTA issues with you when you transferred the DB. LTA is far worse for DC than DB, and as you're close to it it should have been an important consideration in the decision.

thanks - just looked at letter from the 'Pru' i have used 13.98% of my LTA- will add to items to discuss with IFA.

zagfles

fjh wrote: »

thanks - just looked at letter from the 'Pru' i have used 13.98% of my LTA- will add to items to discuss with IFA.

Makes sense, so you crystallised £144k (144k/1030k = 13.98%) taking 25% ie £36k as TFLS so you should now have £108k (plus any growth) in the drawdown/crystallised part of the SIPP with the remainder uncrystallised.

You'll need to keep an eye on LTA issues until you get to 75, but should be able to avoid a charge by making sure you crystallise before you exceed it and making sure you draw down enough to avoid a charge at 75.

Definitely bring it up with the IFA.

LHW99

You'll need to keep an eye on LTA issues until you get to 75, but should be able to avoid a charge by making sure you crystallise before you exceed it and making sure you draw down enough to avoid a charge at 75.

So if you are just below the LTA at 75, does that mean that any subsequent growth that takes you over becomes irrelevant? (Interested to know, but very unlikely to ever be at that point!)

zagfles

LHW99 wrote: »

So if you are just below the LTA at 75, does that mean that any subsequent growth that takes you over becomes irrelevant? (Interested to know, but very unlikely to ever be at that point!)

There won't be any LTA charge, but the tax free lump sum is limited to 25% of available LTA (sort of, see https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063250 for the full nitty gritty), so the LTA is still relevant post 75 if you have uncrystallised funds.

So, AIUI, if you have say £100k uncrystallised at 75, and that exactly uses up the the remainder of your LTA through BCE 5b, you won't pay any LTA but your TFLS will be limited to £25k (subject to indexation as per the link above). So if the £100k grew to £200k then (ignoring indexation) you'd only be able to take £25k as TFLS.

So would likely have been better to crystallise at 75 and ISA up the £25k, even if you pay a little tax on growth while unwrapped (inheritance issues etc aside)