LTA , sorry this will look stupid.

pauline123456

Helping my mother who had a stroke recently sort her pension out mind field.
Thought I had nearly sorted my mothers pension out till LTA popped up now I am confused again .
My mother has a really good pension probably more than she thought ,since my father passed she just got stuck into work and for some reason never bothered about sorting her finances out she just liked working.
shes a teacher .

she is having to retire at 69 yrs due to her health explained above a little.
my question is (tried looking it up on internet still confused as hell)
she will get a good lump some and an income for life going up each year with inflation (CPI)
I understand they will test the LTA when she first takes her pension .lump some + 20 x income
and if that is under 100% of the LTA no further tax .
what I don't understand is :
does each years pension income knock abit off LTA limit % off until it reaches 100% and then extra tax is charged or is it just tested at the start and and if your income is under the LTA , you would get that income with yearly cpi raises for life with no extra LTA tax penalty to pay.

HOPE SOME CAN SHED LIGHT ON THIS

Mick70

Hi Pauline, is it a final salary (DB ) pension your mother has , with a guaranteed income (rising with CPI), it sounds like it is, if so I'm sure the test is simply 20 x the initial pension (plus the lump sum)
so, if her pension is say £20k per year (rising with cpi) and a £40k lump sum
9s0x20= 400 , plus 40 = 440 which is approx 44% of the £1m LTA , no tax charge and none going forward , it will be pretty rare that DB pension holders get hit with LTA worries as they are very leniently treated

I think this is right anyway

edit.. hope your mams health improves

Mick

pauline123456

her pension is bigger than that and still confused.
she is near the max LTA when she takes the lump some.
the 20 they times the income is years I think , if she lives for lets say 25 years more and with cpi she would go well over the LTA limit so this would be subjected to the penalty tax in later years . this I what is going though my head and something is telling me my understanding of LTA is totally wrong

Malthusian

From your description it appears to be a defined benefit pension.

When she crystallises the pension - i.e. they pay her the lump sum and start paying the income - they will calculate 20x the annual pension plus 1x the lump sum and compare that to her remaining lifetime allowance.

There are no further lifetime allowance tests, that is it.

Does she have any other pension plans?

Exactly how much is the annual pension and lump sum?

TcpnT

something is telling me my understanding of LTA is totally wrong

I'm afraid so.

Assuming that this is a DB (final salary or CARE scheme or combination) pension the LTA calculation only comes into play at the time the pension is first drawn - according to the calculation given above. If the LTA is exceeded on that date then LTA tax will be payable on any lump sum or income above that limit. After that you can forget about LTA. Assuming that we are only talking about a single DB pension there is no situation in which the LTA penalty tax will suddenly become payable at some later date during retirement.

It might be easier if you posted the exact numbers and then the calculation could be demonstrated.

pauline123456

thank you for clearing that up , big relief . glad I asked know matter how stupid I sounded .
thanks.
Next part , now I am confident with the people reading and helping , it gets more complicated. it will take me a while to get the next bit down so will post next bit in half hour if you want figures and dates . there is a phased retirement in between all this and a AVC pen and a small Private pen left from my late father.

GunJack

pauline123456 wrote: »

thank you for clearing that up , big relief . glad I asked know matter how stupid I sounded .
thanks.

there's an old saying...

The only stupid question is the one that isn't asked.....

pauline123456

she has an NPA60 and could have retired in 2007 but carried on full time till 6 months past her 65th birthday and then she took phased retirement in sept 2012 took 75% of her pen and the other 25% carried over as to the TPI rules. (she as never used a financial advisor buries her head in work )

(sept 2012) pen calc on 75%of current service = 32yrs 185 days
she got £26620 yearly pen and £178000 lump ,her AVC she took at same time paid approx. £15000 lump and about £4200 yearly pen, my late fathers pen paid her approx. £1200 no lump, state pen and partime salary .
fast forwarded to now she is 72 and started the process of retiring fully had a minor stroke still recoverying , she as asked me to help. final full payment of all her teachers pen 25%12yrs and 180 days + extra 5yrs and 200 days she worked passed phase retirement(latter worked out on 7yrs partime 80% she dropped a day)
figures she as got are
lump £102896
yearly pen £15434
her phased pen is currently £30000 having gone up with cpi
her avc as gone down a little £3950
late father pen is £1100

these figures could change as we have challenged the best salary they chose and we have challenged the fact it hasnt got late retirment enhancements .NPA60 dont get it BUT NPA65 do challeging this for discrimination, mum as said a male teacher she knows started same year she did is same age as her and retired 3 years ago and got it (not sure on the chances thou, approaching union)

not kidding you but the LTA as only just popped up TPI never mentioned it and we have only found out about it while looking online over last few days (i am way off retiring and like my mother )
we have seen on line you can apply for LTA protection not sure if its too late now as she as applied and due to payout shortly and not sure if we would need it anyway .
hope this is enough info and can not thankyou enough for your help.Please be kind about my lack of knowledge

pauline123456

she is a teacher so DB pension widow

pauline123456

could she take more of her pot with being a widow and not having a surviving pension to pass on , she had cancer back in 2012 also, battled through the treatment had 3 months off work and straight back , she's unbelievable but never bothered about her pension or got advice.

Albermarle

It looks like she will be over the LTA , although the fact she took some pension some years ago complicates it. I would make two comments :
1) If you have to pay LTA tax it is a pain but it also means she has a VERY good pension provision, that the vast majority can only dream about . So that is positive .
2) I think you are going to have to pay for some professional advice from an IFA to sort this out .