When to stop paying in...? (LTA etc)

SmashedAvacado

I am fairly financially savvy. I am 43 so i make it that i have another 14 years to go until i am entitled to retire. My current pension value is around £340k.

If this grows at 5% for the next 14 years, it will be worth about £640k
If this grows at about 7% for the next 14 years it will be worth about £850k

I am not saying that i will be able to achieve those returns, but i suppose what i would be intrigued to know / understand is whether strategy should take into account not arriving at the lifetime limit too early. I can pay in £10k to my pension each year tax efficiently but even doing that will probably stick me close to the limit with modest growth. Do people's strategies factor this in? Presumably i keep paying this number in for now ... as the pot needs to grow some more but i am keen to understand whether this becomes a factor / and how far out.

Thoughts appreciated.

JoeCrystal

Something to bear in mind is that LTA can change in the long run. At the moment, it is £1,055,000. It is quite likely that it will go up. Also, you should take inflation into account as well so it won't be £640,000 but £520,000 for 5% return in today's money and £670,000 for 7% return in today's term assuming 2% inflation.

Paul_Herring

Have you thought about working out what the LTA itself will be in, in 14 years?... (Hint - using current regulations and 2% gives £1,390,000, at 2.5%, £1,490,000, 3% £1,590,000.)

SmashedAvacado

Thanks both. so looking at it in today's money (where the LTA will grow presumably by the same amount that the value of the pot will devalue) - so i ignore inflation of the LTA and inflation impact on my pot. So basically i carry on paying in the max i am allowed to of £10k a year and then nearer the time take another look...

Albermarle

Have you thought about working out what the LTA itself will be in, in 14 years?... (Hint - using current regulations and 2% gives £1,390,000, at 2.5%, £1,490,000, 3% £1,590,000.)

Unless a future Chancellor stops the inflation link....

and then nearer the time take another look...

This is the best idea as there are too many unknowns going forward.

Paul_Herring

where the LTA will grow presumably by the same amount that the value of the pot will devalue

The LTA (currently) grows by CPI. Your value of your pot will hopefully be increasing by more than that, even if you were to stop contributing.

Regarding perceiving the LTA as a barrier to make a hard-stop at, I'd suggest reading the replies on this thread: https://forums.moneysavingexpert.com/discussion/6012201/lifetime-allowance

lisyloo

Our strategy factors this in and currently (as of last tax year) I think £900k is safe, however even that has changed as the 40% tax band has now gone up to £50k.

The issue is that you can only drawdown £50k without paying higher rate tax, so if you fund grows more than £42k (taking state pension into account), then the fund will grow bigger.

It’s an impossible call because things change (for example the higher rate tax rate).

Personally I’m not worrying about it until £900k and I think we’ll both be retired before that.

Paul_Herring

Unless a future Chancellor stops the inflation link....

Hence the disclaimer I stuck in there...