hypothetical example - taking a pension early

Malthusian

ratechaser wrote: »

So possible I'll have hit the LTA by 55, depending on performance. Even more possible I'll hit it by 57, if that becomes the earliest I'll be able to access it.

What's your month / year of birth? If you turn 55 in 2028 then you're right on the edge. It could come down to whether the Government applies a taper this time (unlike the increase from 50 to 55 in 2010, when there was a five year cliff edge).

I've got 9 years till 55, and pensions currently total about £700k (including notional value of my old DB scheme) - got a couple more years of being able to max out at 40k with prior year carryover and then will be down to 10k due to income tapering, assuming I don't throw in the towel or get fired...

This bears checking. If you're subject to the maximum AA taper in this tax year and you're paying £40,000 per year, that uses £10,000 from the current year and £30,000 from the oldest year you have to carry forward. If you had the full £40,000 to carry forward from the oldest year, the other £10,000 is lost when the tax year rolls over.

You may already be aware of this but someone paying £40,000 a year isn't necessarily "maxing out" carry forward.

We'll see, possibly an incentive to de-risk depending on how the next few years pan out.

Not in itself. If you can bear the risk, extra growth taxable at 25% is better than no extra growth at all.

What could make sense is, having first decided how much you want in high-risk sectors and how much in low/medium-risk, would be holding the high-risk assets outside your pension and the lower-risk, lower-growth assets inside it. In other words the lifetime allowance issue does not influence the asset allocation whatsoever, only which baskets get which eggs.

Personally I think that risks creating more headaches than it solves. E.g. you want to spend some money at 55 during a downturn, but drawing from the relatively resilient assets in your pension comes with a lifetime allowance charge and drawing from your non-pension investments means cashing in smaller companies at the bottom of the market. A change in legislation could render the exercise pointless.

ratechaser

Malthusian, thanks. Never got the hang of multi quoting so not going to try. But to to take your points in order

1) Yes, I could be SOL on that one, given I'm 2 days the wrong side of the 2028 tax year. I know there haven't been any rule changes yet, just a statement of intent - so I'm prepared for it being 57 in my case before access. Not heard anything that could suggest a worse cliff edge approach?

2) Yes, already aware - I actually used about 20k of my 16/17 carryover already, so I'm left with 20k there and 40k for 17/18. Add to my taper allowance and it gives me 40k headroom for the next 2 years (numbers aren't exact, but close enough).

3) Not really giving much thought to risk right now, aside from wondering when my punt into commodity derivatives will come good. Need to do a full portfolio review at some point because I have 4 different pots (not to mention the DB one) invested in about 25 funds between them and I know there's overlap and inefficiency. I had a go a couple of years back but employers pension fund factsheets aren't great at telling you what you're really invested in (i.e no external ISIN or clear name data) so market performance comparisons are hard. Plus overall it seems to have performed reasonably so I've parked it for now.

camelopardis

Aretnap wrote: »

Indeed, except in rare circumstances which you really don't want to apply to you, you are not allowed to withdraw from your pension before you are 55.

You could have a protected retirement age below 55 which you would certainly want applied to you if eligible

ffacoffipawb

camelopardis wrote: »

You could have a protected retirement age below 55 which you would certainly want applied to you if eligible

Potentially there is a reduced LTA in some (not all) circumstances when crystallising a pot below age 55. The LTA is reduced by 2.5% per annum simple. So at age 35 (possible age for some occupations) the LTA may be halved.

Malthusian

ratechaser wrote: »

1) Yes, I could be SOL on that one, given I'm 2 days the wrong side of the 2028 tax year. I know there haven't been any rule changes yet, just a statement of intent - so I'm prepared for it being 57 in my case before access. Not heard anything that could suggest a worse cliff edge approach?

You should assume it will be 57 as there has been no indication the intention has changed. The only reason the rules haven't changed is because there is no need to change them until 2027.

It's unlikely the cliff edge will be worse - I only mentioned the five year cliff edge because that's what it was in 2010. The Government has said that it will be two years this time, and it's unlikely they'll change it for 2028 less than 10 years out.

3) Not really giving much thought to risk right now, aside from wondering when my punt into commodity derivatives will come good.

The tenth of never if Extinction Rebellion's white middle-class jihadis have their way, and/or if improvements in technology continue to make commodities cheaper.