25% PCLS plus LTA excess question

fizio

Scenario is as follows
DB pension worth 1m so 250k available as tax free but you only take 200k leaving 50k unused.
A second DC pension is worth 200k and subject to LTA.

The question is given that I have not used up the full 250k pcls, can I take the remaining 50k from the DC LTA excess pot?



I believe not but thought it worth asking here.

Marcon

DB pensions don't work like DC schemes in terms of calculating tax free lump sums. Have you checked exactly what PCLS you could take from the DB scheme?

fizio

Yes I know the max i can take from DB but don't want to take it all from that pot due to the hit on db pension - hence the question on taking cash from LTA excess which is not allowed under normal circumstances

ffacoffipawb

If your DB pension, in whichever pension and PCLS combo you take, uses up all LTA then there is no PCLS available from your DC scheme.

The maximum PCLS available from your DC scheme (assuming no other pensions or protections is)

(LTA - 20 x DB Pension Taken - DB PCLS Taken) / 4

If this is negative then no PCLS can be taken from your Dc scheme.

wjr4

What is the estimated LTA % being used on your DB scheme? It is usually 20 x income against the LTA (with PCLS added possibly).

fizio

ffacoffipawb wrote: »

If your DB pension, in whichever pension and PCLS combo you take, uses up all LTA then there is no PCLS available from your DC scheme.

Yes pension x 20 + pcls does take me to LTA but I am below the 25% pcls allowable henec though it worth asking. I have also asked my dc provider but don't execpt a clear or quick response.

fizio

wjr4 wrote: »

What is the estimated LTA % being used on your DB scheme? It is usually 20 x income against the LTA (with PCLS added possibly).

standard x 20 and its prettu much using 100% lta

Silvertabby

haf63 wrote: »

Scenario is as follows
DB pension worth 1m so 250k available as tax free but you only take 200k leaving 50k unused.
A second DC pension is worth 200k and subject to LTA.

The question is given that I have not used up the full 250k pcls, can I take the remaining 50k from the DC LTA excess pot?


I believe not but thought it worth asking here.

Have you factored in your scheme's commutation rate? The reference to 25 % max is just the HMRC limit - after that, it's the scheme's commutation rate that determines the actual lump sum and reduced pension - and thus the LTA.

For example, most public sector pension schemes use the (not particularly generous) commutation rate of 1:12 (£1 of annual index linked pension for life given up for £12 tax free cash today).

Annual pension = £50K

20 X £50K = £1m (for LTA and max lump sum purposes)

Commute the maximum at 1:12, however, and you get:

£32,142.86 annual pension.
£214,285.71 tax free lump sum.

20 x £32,142.86 plus 1 x £214,285.71 = £857,142.91 LTA. (and 25% of £857,142.91 is £214,285.72).

fizio

Silvertabby wrote: »

Have you factored in your scheme's commutation rate? The reference to 25 % max is just the HMRC limit - after that, it's the scheme's commutation rate that determines the actual lump sum and reduced pension - and thus the LTA.

For example, most public sector pension schemes use the (not particularly generous) commutation rate of 1:12 (£1 of annual index linked pension for life given up for £12 tax free cash today).

Annual pension = £50K

20 X £50K = £1m (for LTA and max lump sum purposes)

Commute the maximum at 1:12, however, and you get:

£32,142.86 annual pension.
£214,285.71 tax free lump sum.

20 x £32,142.86 plus 1 x £214,285.71 = £857,142.91 LTA. (and 25% of £857,142.91 is £214,285.72).

I have now looked into this and its pretty much the same number (within 20k) if i do 20xfull db versus 20xdb discounted for pcls.



I've simplified the situation to better articulate th eproblem but under the covers the db pension includes a linked dc portion which is very restrictive in what the pension trust will let you do with it.


For me the pension piece is clear in that i will hit LTA and also not use the full 25% pcls (to avoid the commutation) so it will be a bonus if i can use a differnt dc pot above LTA to steal back some tax free cash. I will see what the pension provider of the other dc pot says and feed back.

ffacoffipawb

haf63 wrote: »

I have now looked into this and its pretty much the same number (within 20k) if i do 20xfull db versus 20xdb discounted for pcls.



I've simplified the situation to better articulate th eproblem but under the covers the db pension includes a linked dc portion which is very restrictive in what the pension trust will let you do with it.


For me the pension piece is clear in that i will hit LTA and also not use the full 25% pcls (to avoid the commutation) so it will be a bonus if i can use a differnt dc pot above LTA to steal back some tax free cash. I will see what the pension provider of the other dc pot says and feed back.

If you crystallise 100% LTA from your DB, whether pension or part cash, no PCLS is available from your DC pension. My previous answer covers this.

fizio

ffacoffipawb wrote: »

If you crystallise 100% LTA from your DB, whether pension or part cash, no PCLS is available from your DC pension. My previous answer covers this.

Yes thats pretty much what I am expecting so thanks for confirming and I expect the same from pension provider..

Its annoying that I will miss out on some tax free despite having above lta total pot - simply because the pensions trust have so many restrictions and regulations about what you can and cannot do with different bits of the pension. It all comes down the trust in my case not reayy adapting to all the new pensions freedom regulations as quickly as i'd like.


As I said - in many way its. anice problem to have so I can't really complain..