Can I /you get hit by LTA twice ?

zagfles

Mick70 wrote: »

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

There's no limit to the amount of times you can get hit.

You get hit by the LTA when a BCE (benefit crystallisation event) occurs which takes you over the LTA, and then every time a further BCE occurs.

Even once everything is crystallised there is a further BCE on the growth in crystallised funds at age 75.

Google LTA BCE for loads of helpful articles. And find an IFA who understand the LTA inside out, because if they don't they can't competantly advise you on the transfer.

Malthusian

Mick70 wrote: »

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

As Zagfles says there is no limit.

You could subject the same money to an infinite number of LTA tests if you felt like it, e.g. by transferring it to a QROPS, then back to the UK, then back to QROPS again, then repeating until it was all gone.

This is a minor technical detail of a highly complex situation for which you really need independent financial advice.

jamesd

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.

"a £79k lump sum and an annual pension of £26,200 which will rise with RPI each year. Spouse pension is £15,500 ... I have also received a transfer valuation of £1.7M" That's a transfer value of 62 times the annual income. Or alternatively put, spending 1.6% of the capital a year before tax effects to match the DB.

Draw the DB's 26,200 every year from 55 to 75 after transferring and it only comes to 524k before inflation effects. Any lifetime allowance issues arise just because he's got so much more money. Even talking twice the DB income out of the pension every year may not keep up with pot growth.

A significant difference is DB available from 55 but borrowing can shift DC in effect to 50 as well.

I wrote a summary of how he can mitigate the LTA here. For the 615k part subject to the LTA he could do something like paying the 255 income LTA charge rate and spending 461k on annuity buying if he wanted to. At 55 that'd get him one of:

1. an RPI single life annuity paying £8,000 a year or
2. a 3% escalation 50% spousal one paying £9,143 a year or
3. a level 50% spousal one paying £16,402 a year

Of course he could do this with better annuity rates at later ages or gradually over the years.

On top of that he'd have £1,055,000 with £263,750 of it tax free lump sum.

jamesd

Mick70 wrote: »

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

Once before age 75 on drawing above the LTA then on growth since taking drawdown at age 75, or at 75 on any not touched.

Have a re-read of this post where I described it.

One LTA minimising approach is:

A. to take up to the LTA in drawdown, draw rapidly enough to avoid a charge on growth
B. pay 25% LTA charge (£153,750) on the remaining £615,000 by gradually buying annuities over the years before age 75.

That combination delivers a LTA bill of 9% of the pot and LTA charged once only just on each of the 615,000 Pounds. You could pay the LTA 615 times by taking that 615k in 1k chunks or once in a 615k chunk but you'd still pay it only once on each Pound.

That's a lot of money but even after the LTA charge it's still £1,546,250 to compare to the DB.

Don't over-concentrate on the LTA. It's there only because the amount is so big compared to the DB income, still 59 times the income even after the charge.

zagfles

jamesd wrote: »

"a £79k lump sum and an annual pension of £26,200 which will rise with RPI each year. Spouse pension is £15,500 ... I have also received a transfer valuation of £1.7M" That's a transfer value of 62 times the annual income. Or alternatively put, spending 1.6%of the capital a year before tax effects to match the DB.

Can you find an RPI linked joint life annuity at age 50, or even 55, giving 1.6% or more? Nearest I can find is single life RPI at 55 which is 1.7%.

1.6% is probably better than market rate for a guaranteed RPI linked income joint life at 50 with 59% spouse pension. Anything better means taking an investment risk.

Draw the DB's 26,200 every year from 55 to 75 after transferring and it only comes to 524k before inflation effects.

So? The OP has an RPI linked DB scheme, and payable at 50, not 55. Ignoring inflation is ignoring one of the main benefits of the OP's scheme.

Why is it you think the CETV is so high? Do you think the actuaries have got their sums wrong? The CETV reflects the cost of replicating what the OP has. He could take a risk and there's a good chance of getting more, perhaps significantly more, but there's also a chance of getting less.

This is like the choice someone in a DC scheme faces, between buying an annuity and using drawdown, but with a couple of significant kickers. If you use drawdown there's a big tax sting, plus a financial adviser bill.

Malthusian

zagfles wrote: »

This is like the choice someone in a DC scheme faces, between buying an annuity and using drawdown, but with a couple of significant kickers. If you use drawdown there's a big tax sting, plus a financial adviser bill.

For a £1.7 million CETV the financial adviser bill is actually a smaller kicker than when buying an annuity.

Standard commission / fee on an annuity would be in the region of 2-3%. A decency cap should ensure that the OP pays nowhere near 2-3% initial on a £1.7 million transfer (which would be £34,000+).

Ongoing management of the fund would involve ongoing fees but that's not relevant as there's no ongoing management of an annuity.

Admittedly a decency cap would also kick in if you wanted advice on using a £1.7 million DC fund to buy an annuity, but literally nobody would do that.

With the amounts we are talking about the cost of advice is neither here nor there. If the OP isn't confident that the benefits of transferring would make up for the cost of advice several times over, he shouldn't do it, because that means the margins are too thin to take the risk.

jimi_man

zagfles wrote: »

Can you find an RPI linked joint life annuity at age 50, or even 55, giving 1.6% or more? Nearest I can find is single life RPI at 55 which is 1.7%.

1.6% is probably better than market rate for a guaranteed RPI linked income joint life at 50 with 59% spouse pension. Anything better means taking an investment risk.So? The OP has an RPI linked DB scheme, and payable at 50, not 55. Ignoring inflation is ignoring one of the main benefits of the OP's scheme.

Why is it you think the CETV is so high? Do you think the actuaries have got their sums wrong? The CETV reflects the cost of replicating what the OP has. He could take a risk and there's a good chance of getting more, perhaps significantly more, but there's also a chance of getting less.

This is like the choice someone in a DC scheme faces, between buying an annuity and using drawdown, but with a couple of significant kickers. If you use drawdown there's a big tax sting, plus a financial adviser bill.

I think this is the point that seems to be missing from this transfer. The general consensus seems to be that over 30 x the pension is a reasonable figure, so therefore as this is so much more it must be amazing. However when you take into account that RPI over the last 30 years is around 3.5% average, applied to £26700 over 36 years (50 to average life expectancy age of 86) then with the £79K it comes to around £1.9 million in total payments. Suddenly £1.7 million isn’t quite such a good deal. When you add in £153K of LTA tax payments, plus 36 years of fees and there could be £1/2 million in extra costs.

Furthermore, if I recall correctly, he was advised against the transfer by his IFA because of being cautious people with a low risk tolerance amongst other things. I also recall that the DB pension offered good spouse protection, the pension fund was in good order, he had no other DB pensions nor had his wife, he was in good health and he states that he is an inexperienced investor.

When you add all that together then personally, I wouldn’t touch it with a bargepole.

Mick70

thanks for all comments

regarding LTA , currently £1.05M .
If tested , say at 75, im assuming it uses the LTA as at that date , so if LTA was inflating by say 2% each year it could be £1.5m by then .
also, when it calculates each year how much % you have used again im assuming it uses the latest LTA figure ?

jamesd

zagfles wrote: »

Can you find an RPI linked joint life annuity at age 50, or even 55, giving 1.6% or more? Nearest I can find is single life RPI at 55 which is 1.7%.

No. No need to when just 2.5% assumed natural yield from £1,546,250 comes to £38,656 a year before income tax and it's easy enough to leave money in cash to cover a few years of that.

zagfles wrote: »

So? The OP has an RPI linked DB scheme, and payable at 50, not 55. Ignoring inflation is ignoring one of the main benefits of the OP's scheme.

An alternative phrasing would have been assuming growth matches inflation.

zagfles wrote: »

Why is it you think the CETV is so high? Do you think the actuaries have got their sums wrong? The CETV reflects the cost of replicating what the OP has. He could take a risk and there's a good chance of getting more, perhaps significantly more, but there's also a chance of getting less.

Either using gilts or pricing annuity buyout by an insurer. While there is a chance of getting less it requires something worse than we saw in the last century plus. Which isn't impossible, just unlikely, in part because just matching can be done with the natural yield.

zagfles wrote: »

If you use drawdown there's a big tax sting, plus a financial adviser bill.

9% is less than the difference between higher and basic rate tax. His big extra cost is likely to be paying more than twice as much basic rate income tax ... because starting taking 50k a year out of the pension is sensible. A natural consequence of having more money, not a bad thing.

jamesd

Mick70 wrote: »

regarding LTA , currently £1.05M .
If tested , say at 75, im assuming it uses the LTA as at that date , so if LTA was inflating by say 2% each year it could be £1.5m by then .
also, when it calculates each year how much % you have used again im assuming it uses the latest LTA figure ?

Each time you take benefits from the pension money the percentage of the allowance in effect at that time is calculated and added to the percentage already used. So take 66.6k a year and

1. year 1 LTA 1000000, 6.6% used.
2. year 2 LTA 1000000, another 6.6% used 13.2% total used
3. continue 10 more years, another 66% used, 99.2% total, 0.8% of the allowance at the last year still available.

The allowance when you reach 75 is unlikely to matter because 100% is likely to have been used already. So all of any value increase in the drawdown part would be subject to the charge. That increase isn't calculated with percentages.