"Final salary pensioners may have income limits halved"

hyubh

nash0819 wrote: »

I've been paying into the LGPS DB scheme continuously since May 1995. No other pensions - SIPPs or AVCs.

My last annual statement (March 2018) suggested I would hit 85% of my LTA if I continue contributing until age 67. That's unlikely, as I hope to have enough bridging finance to be able to retire at 60 (in 2027), whilst aiming to take LGPS pension at 65ish to avoid excessive penalisation by actuarial reductions.

Keep in mind your pension on membership between 1995 and March 2008 won't be reduced from 60, given rule of 85 protections. If you left age 60 but only drew the pension at 65, the whole pension would 'just' revalue as normal (i.e. increase by CPI, being a public sector pension), in effect meaning you would forgo any benefit from the earlier service's lower minimum retirement age.

So, as the 20x multiplier stands, I'll be fine with the LTA. But if it increases to say 30x I'm starting to worry I will breach it??

I think seeing the 20x multiplier as potentially rising within the next decade is a reasonable concern. However, you will have leeway even so because you could just commute some pension for more tax free cash (for people without LTA issues, the 12/1 commutation rate should be considered very poor, for those with them, not so much).

Perhaps something you should just as well factor in is the potential for further salary growth, since you have quite a lot of service carrying a final salary link (a proportion that will potentially rise, depending on how McCloud pans out). I would be 90% confident the ABS doesn't assume any real-terms salary growth, so having any between now and leaving would be a force multiplier (so to speak) on the value of at least 19/32 of your service by age 60, probably more following McCloud.

I am currently considering adding a good few 10K into SIPPs (rather than SSISAs). But now I wonder if SIPPs are worth the gamble of breaching the LTA (presumably all pension pots are added together for LTA calcs).

Yes, added together - for DC (SIPP, LGPS AVC, whatever), the figure to use is just the value of pension pot when you start to draw from it. However, if you drew your pensions at different times, then how it works is that your remaining LTA becomes a percentage of whatever the LTA comes to be when you draw the next one. So, if you invested in a SIPP then crystallised it at age 60, and for sake of argument its value was 100k when the LTA at the time was 1m, then you would have used 10% of the LTA, and therefore have 90% of whatever the LTA came to be left when you drew your LGPS pension.

nash0819

Thanks Albermarle and hyubh, good food for thought there. In particular I hadn't considered that I would effectively be foregoing my "rule of 85" age 60 retirement protection by waiting until 65. Although obvious now it's pointed out. Also good point of 12x commutation potentially coming into play should I have LTA issues.

I'm onto about my third iteration of trying to get my head round all of this and I think I'm getting close!

kinger101

nigelbb wrote: »

No. A DB pension is but a DC pension is just a tax efficient savings plan.

Care to elaborate why you think DB is deferred income and DC isn't?

kinger101

lisyloo wrote: »

I’m sure you’re already aware of this but some deferred salary schemes will just stop when you die, whereas a savings pot would still be there with whatever you haven’t spent.

I’m not one to get too het up over words but there are differences which from your other posts I’m pretty sure you are aware of.

Both are deferred income. You're giving up the right to access gross income now on the condition it will be taxed in future.

For most, there's considerable benefit to having income tax in the future to make use of a personal allowance which would otherwise not be fully utilized. Even a full state pension is well under £12,500.

For higher rate taxpayers, they're deferring to reduce their marginal rate by 20%.

hyubh

kinger101 wrote: »

Care to elaborate why you think DB is deferred income and DC isn't?

Just as well he didn't claim that, eh For sure both DB and DC pensions involve 'deferred income' in that you can only start drawing them later in life (outside of special circumstances). However, a DB pension is also 'deferred salary' because of who is responsible for paying it, when it is in payment.

kinger101

hyubh wrote: »

Just as well he didn't claim that, eh For sure both DB and DC pensions involve 'deferred income' in that you can only start drawing them later in life (outside of special circumstances). However, a DB pension is also 'deferred salary' because of who is responsible for paying it, when it is in payment.

I see your point, but usually it isn't usually the employer.

In common parlance, a DB pension isn't salary.

(a) HMRC themselves use the terminology salary sacrifice (not deferment)
(b) The pensions themselves are based on "Final" or a "career-averaged" salary - implying pension is not salary

jamesd

It's deferred remuneration.

Stories saying that the 20 times multiplier is based on the cost of buying an annuity are incomplete. Flexibility and avoidance potential were also considered in the GAD's recommendation.

BobQ

GunJack wrote: »

Taking it to 40x would be so punitive it should be a political non-starter. IF they're thinking of altering it, I could see a case for 25x maybe, but no higher.

Retrospectively hammering people fortunate to have DB pensions (most of which will have had them since before LTAs were introduced) is just plain wrong IMHO.

( a

Retrospection is often subject to bad publicity and legal challenges. The Government s already facing a problem with public service pensions arising from it losing the case for age discrimination.

In the past when the LTA has been reduced (and that is effectively the consequence of a multiplier of 40) it has imposed the change on future contributions and given those who have already exceeded the new LTA exemption. Meaning they would then have to accept the consequences of continuing to contribute or stop contributing.

But the change would increase the problems for the NHS with doctors and dentists restricting their hours and seriously amage recruitment and retention in teaching, etc)

A relatively modest professional pension in the public sector (say £30K )would exceed the LTA at a stroke.

BobQ

nigelbb wrote: »

Not really it isn't. That's just putting some of your current salary into a savings scheme & getting tax relief on the payments.

Deferred salary from a defined benefit scheme means that you are paid part of your salary today & the remainder after pension age for the rest of your life e.g. the NHS pension pays 1/54 of salary from SPA until death. Assuming you lived 27 years post SPA you will receive 2/3 as salary today & 1/3 as pension after you retire.

So if you put in 5% and your employer puts in 5%.your DC pot contains money your employer has given to you on condition it goes into a pension scheme which you cannot access until you draw the pension. Sounds like that 5% is deferred salary.

Filo25

Increase the multiple and increase the LTA, I don't think there is much doubt that there is currently a signiifcant imbalance in the generosity of the LTA between those in DB and DC schemes.