Can I /you get hit by LTA twice ?

Mick70

Happy new year all , back to reality now unfortunately .
I posted before I may end up with a £.7M dc pot, I am aware I will get hit by the LTA tax but slightly unsure if I get hit once or possibly twice ??
If I get this pot now (age nearly 50 I am hoping it maybe £2m by time retire - 2% growth pa)
On my calculations , if I retire at 57/58, and take out £54k a year (25% of that would be the tax free element ) using guidelines of withdrawing about 3% of pot value , by age 74 I would have used up 92% of my LTA, I think .
Say if my pot value then was £1.5m (on my calcs my pot grows 2% pa , and my annual withdrawals the same),
Then at 75 I would be hit with an LTA tax of £1.5m x 25% = £375k I think . And then never hit again , I think that is right ??
What happens if I hit the 100% LTA a couple of years earlier and the charge is triggered then, say at age 72 I hit the 100%. Again pot value , using 1.5m example again x 25% chg? But then could I be hit yet again at 75? But confused on that .

Is there a better way to minimise the LTA? Should I crystallise £1m from the start and pay the LTA straightaway or not ? Or is this silly if don’t need all the tax free cash upfront and better off using it annually to boost your pension ?
The amount that goes into drawdown does that still grow the way your main pot would?
And is sticking to a 3-4% annual withdrawal rate what most people do and advisable ? Read some of the guiter rule but soon became confused .
On my spreadsheet my pot rises yearly by inflation (say 2%)

Thanks again for any advice , now for my dreaded commute

Happy new year again ,
Mick

Dox

If you're looking for detailed financial advice and advice on tax planning, and you seem to be in the happy position(!) of needing both, relying on a free forum isn't the place. Go and see an IFA while you are young enough to get some decisive strategies in place, based on a full understanding of all your finances, not just snippets.

Aegis

From a personal income perspective, it makes sense to crystallise the up to lifetime allowance at the later of either reaching age 55 or reaching your lifetime allowance. From a death benefit perspective (i.e. what you can leave to your family), this is nowhere near as clear cut. You also need to see whether you can access any enhancements to the standard lifetime allowance - e.g. Fixed Protection 2016 is still available if you have not been contributing.


The drawdown portion of your pension can indeed remain invested, and in fact many pensions just notionally allocate some of the fund towards drawdown, meaning you don't even necessarily need to manage multiple investment portfolios within the same pension.

zagfles

Your post is confusing, you wrote £.7M did you mean that? ie 0.7M? How does 2% growth get to £2M at retirement? That would take over 50 years!

GunJack

zagfles wrote: »

Your post is confusing, you wrote £.7M did you mean that? ie 0.7M? How does 2% growth get to £2M at retirement? That would take over 50 years!

IIRC, Mick70 was looking at possibly a £1.7m pot

zagfles

GunJack wrote: »

IIRC, Mick70 was looking at possibly a £1.7m pot

That makes sense then. In which case I'd agree with Aegis above.

But what's this "may end up with" rather than "now have", implies a DB transfer? In which case an IFA will be needed, and the LTA issues should be accounted for and discussed in detail with the IFA and should be a major issue in any recommendation to (or not to) transfer. So make sure the IFA understands and accounts for LTA issues (as we've seen here many don't!).

I wouldn't have thought a positive recommendation would be likely unless low life expectancy or unusual circumstances, since LTA hits DC far harder than DB.

Mick70

zagfles wrote: »

Your post is confusing, you wrote £.7M did you mean that? ie 0.7M? How does 2% growth get to £2M at retirement? That would take over 50 years!

!!!!!!, I meant £1.7M , sorry .

Mick70

zagfles wrote: »

I wouldn't have thought a positive recommendation would be likely unless low life expectancy or unusual circumstances, since LTA hits DC far harder than DB.

Yes it is a dB transfer . I’m surprised you say that as most posters have suggested they would take it (to compare - dB was £26.7k pa rising rpi and 79k lump sum, from age 50. CETV is £1.7m)

Anyway , still curious about my queries if anyone can answer them

Albermarle

But what's this "may end up with" rather than "now have", implies a DB transfer? I

Zagfles- The OP has started a number of other threads last year, some many pages long .
He has been offered a huge CETV but was hesitating and asking a lot of questions .
He has seen an IFA but seems it was not a very good one and I think the process is starting again.

Mick70

So can you get hit twice with the LTA or just once ?

zagfles

Mick70 wrote: »

Yes it is a dB transfer . I’m surprised you say that as most posters have suggested they would take it (to compare - dB was £26.7k pa rising rpi and 79k lump sum, from age 50. CETV is £1.7m)

Well the circumstances are unusual - at first glance it looks to be an incredibly generous CETV but then a pension paid at 50 with (uncapped?) RPI inflation is incredibily generous too.

Bear in mind RPI is an outdated measure of inflation which has a "formula effect" which makes it significantly higher than (arguably) "real" inflation, close to 1% higher. Google "RPI formula effect" for more.

The CETV is worth considering but by no means is it a no-brainer, particularly with the LTA issues.