"Final salary pensioners may have income limits halved"

pensionboy

You may have read an article in the Sunday Telegraph Money Section by Laura Miller (20/6/19) which threatens the multiple of 20 used by The Treasury (since 2006) to calculate LTA could be increased to 40, in order to claw back a £4bn deficit resultant from a recent Govt loss in the Supreme Court. As someone looking to retire in the Autumn of next year just under the current LTA threshold I am trying to assess the likelihood of risk this poses to current retirement plans - thoughts on likely scenarios for implementing such a change welcomed!

westv

20 x does seem quite generous though.

jimi_man

40 x less so!

AnotherJoe

I suspect it will happen, will be lower than 40, and wont be done any time soon due to Brexit followed by a general election. And then likely a few years grace to allow for people who arent over now but would be after a change. You might even get a pass anyway. I wouldn't be concerned given your timescales.

Flugelhorn

AnotherJoe wrote: »

I suspect it will happen, will be lower than 40, and wont be done any time soon due to Brexit followed by a general election. And then likely a few years grace to allow for people who arent over now but would be after a change. You might even get a pass anyway. I wouldn't be concerned given your timescales.

Agree , likely to have some protection similar to when the LTA was reduced

JoeCrystal

jimi_man wrote: »

40 x less so!

Well, ideally, it would be based on annuity rate at the time, but I can see that it would be too complicated to introduce. the annuity is 35 times the pension at the moment (assuming Joint life 50%, 3% escalation, no guarantee annuity at 65).

Paul_Herring

pensionboy wrote: »

You may have read an article in the Sunday Telegraph Money Section by Laura Miller (20/6/19) ...

Couldn't find that particular article, but here's another:

https://www.ftadviser.com/pensions/2019/07/03/pension-tax-ratio-could-change/

The current 20:1 ratio was set in 2006, when the LTA concept was introduced as part of pensions simplification, and has not been changed since.

The rationale for the ratio is that it is the same as the amount needed to buy an equivalent annuity on the open market.

Durban

I wonder if this might be a good thing for some people?

I am in the LGPS and pay separately into an AVC scheme. The AVC will allow me to take the whole AVC fund tax free as long as it doesn't exceed 25% of my total pensions ( LGPS DB plus lump sum plus AVC pot).

The value of my DB pension is worked out on the 20 multiple.

I would imagine that it would be lower than 40, possibly somewhere in the middle like 30?

If this is the case , it may be beneficial to people like me as my AVC pot will exceed 25 % of my total pensions so I won't be able to take the whole of my AVC pot out tax free and will have to do something else with the residual. However , if the multiple was increased to say 30 , then I would up my AVC contributions even more.

OldBeanz

Durban wrote: »

I wonder if this might be a good thing for some people?

I am in the LGPS and pay separately into an AVC scheme. The AVC will allow me to take the whole AVC fund tax free as long as it doesn't exceed 25% of my total pensions ( LGPS DB plus lump sum plus AVC pot).

The value of my DB pension is worked out on the 20 multiple.

I would imagine that it would be lower than 40, possibly somewhere in the middle like 30?

If this is the case , it may be beneficial to people like me as my AVC pot will exceed 25 % of my total pensions so I won't be able to take the whole of my AVC pot out tax free and will have to do something else with the residual. However , if the multiple was increased to say 30 , then I would up my AVC contributions even more.

Beat me to it. The wife would love a valuation x40.

Flugelhorn

doesn't the multiplier mean that many more people would be liable to tax?

say you have a 50k pension, then the multiplier of 20 would make that 1 million so inside the LTA, if the multiplier was 40 then the pot value would be 2 million so tax payable +++.

pensionboy

Many thanks for the responses.

From all I have seen it seems only a matter of time before the x20 LTA multiple is reviewed upwards by the Treasury (x40 or otherwise).

Whilst I agree with Flugelhorn that any change is unlikely to be implemented within my retirement timeframe (and were it to be so a 'grace period' would hopefully apply) the situation does seem to call for a balancing of likelihood v consequence.

If I am reading it correctly what is currently a £263,750 tax free lump sum and £39,562 annual pension (liable to normal rates of PAYE) would in consequence of a x40 LTA multiple see a new additional tax liability of £435,188 - to be taken as 25% of the annual pension before PAYE. I would assume, Brexit and General Elections permitting, the earliest any such change could be implemented would be the tax year 2020/21.