Life Time Allowance - Big Questions!

Albermarle

The only reason I can think of to work longer is having a passion or enjoying your job - this doesn't apply to many people.

I think this a bit of a sweeping statement . Everybody is different with different backgrounds , family situations etc and there are many different reasons to stop working or not stop working.

ex-pat_scot

lisyloo wrote: »

But if you had enough, even by your extravagant budget why would you need to. I understand some level of caution given the unknowns e.g, inflation, but why aim for an arbitrary number rather than your own needs.

The only reason I can think of to work longer is having a passion or enjoying your job - this doesn't apply to many people.

A few thoughts:

- I have to plough on until 55. I get 67% marginal relief on my pension contributions, which are my only savings vehicle at present.

I will get to my 55th birthday and emerge blinking into the newly - opened-door of opportunity for taking the pension.

If I exceed the LTA before I hit 55 then that's great. I may throttle back on risk appetite or contribution level.

If I am below LTA then I will assess then what my Number is, and the adequacy of the pot. Then future strategy for duration, contribution, risk appetite.

Frankly I am not sure I will know the Number for many years.

Why?

I have a large number of children, who (when I will be 55) will be in various stages of early adulthood and some of whom will be in tertiary education.

Short term we will have school fees and university costs, as well as the considerable costs associated with multiple music, theatre and dance commitments that will gradually ease off.

Medium term I expect to have the challenges of elder care for ageing parents, in time and costs, as yet unknown.

Longer term I know the basic running costs, but little else.


I know that classic thinking is to work backwards from the Number.
However I am working backwards from the Age (55). Until then, I am progressing on a broad heading (£40,000 contributions; adventurous risk appetite; flexible plans) with a view that i will reassess when things change or I hit 55.

I'm certainly not planning on working longer than I have to: the work I do and its required sacrifices are high stress. It is taking its toll, but our family circumstances are such that I cannot materially reset until I hit 55 at the earliest.

Doglegger

It's came up a few times on LTA questions on here recently that if you're there or there abouts you can use the 3x small pots rule to preserve a bit of LTA %age or save a slice of tax on £30k of it. I know ffacoffipawb is doing this at the moment. Something worth investigating for anyone in that scenario.

ffacoffipawb

Doglegger wrote: »

It's came up a few times on LTA questions on here recently that if you're there or there abouts you can use the 3x small pots rule to preserve a bit of LTA %age or save a slice of tax on £30k of it. I know ffacoffipawb is doing this at the moment. Something worth investigating for anyone in that scenario.

Name dropper

Waiting til April 6th for small pot number 2.

Could do it now but better left until the next tax year for tax and child benefit reasons.

dgswk

Wow! I wish I had found this forum before, so much knowledge, I'm a bit overwhelmed to be honest and trying to digest!!!!

Much of the general comments align exactly with my thought processes;

1. Absolutely, the taxman will never wag the investment dog!!!! I'm very familiar with self-assessment and in a similar theme, don't turn down work for fear of the taxman.

2. Will my retirement age change to 55, not 57 as it is now? Well its already hit my wife who is an August 1973 child as opposed to a January one so I take nothing for granted. So if it moves it moves, its not the end of the world. Health is good now, but again, a lot can change, it will be what it will be. I may be desperate to leave my job, I may not, again, who knows, probably some benefit in retiring on the 5th April 2030 at the start of the new tax year though.

3. Other investments - ISA's etc, yeah, we are sorted, so is the mortgage (well not yet, but going the right way)

4. My scheme is salary sacrifice, so madness not to use it! Equally, I can also take share options (subject to capital gains later), but I can take them significantly discounted with the difference not taxed.

5. I didn't and don't think about what I will need, I just thought aim for the max, thats the best you can do, if you hit that then you are very lucky and if you cannot live comfortably on it, there is something wrong with you rather than the system.

What I have picked up so far:-

LTA is measured at least twice - at initial retirement (say 57 in my case) and again when I'm 75. If I took my example, of where I want to be - around 57th Birthday, early 2030:-

£200k DB, yes, the DB will be about £10k p/a (after reduction for early retirement)
£800k DC, so realistically drawdown £35k p/a

I'd never move my DB, thats my back up plan which will see me through whatever happens.

I'd continue to fund manage my £800k reasonably aggressively, say 6-8%, so thats £50-60k, to cover drawdown, inflation and some for not so good years.

That gives £45k so slips under the 40% tax rate.

The other piece of the jigsaw, we have a second property in the South West, which I have an interest only mortgage on - £180/month for £135k until I'm 67. < 2% interest.

So at 67, I'd take my 25% lump to the max to clear it, to help us get to the age 75 measure. My drawdown would drop post withdrawal, but then state would kick in with £5-6k to make up for it. If it exists anymore.

I could take the lump sum at 57, but assuming mortgage interest rates dont exceed returns, why would you.

Obviously, this is all based on today's money, todays low interest environment, economy etc etc. Things change, plans change, people change, health changes and work changes. All you can do is be sharp with your money, and plan for what you know.

I'll carry on reading the comments in depth, and probably come back with some more thoughts, questions. Overall, comfortable I'm doing the right thing and a lot will change for sure over the next 8-10 years.

Thank you all again - really really useful stuff.

happyandcontented

if you defer SP does it accrue tax free?

eskbanker

happyandcontented wrote: »

if you defer SP does it accrue tax free?

Not sure what tax you're referring to but there isn't really any accrual as such - deferral simply increases the amount paid out by a specified time-based percentage, and once it is paid out the pension payments are subject to income tax in the usual way.

https://www.gov.uk/deferring-state-pension/what-you-get

Mick70

happyandcontented wrote: »

if you defer SP does it accrue tax free?

it increases by 5.8% for every year you defer it

happyandcontented

Mick70 wrote: »

it increases by 5.8% for every year you defer it

That was my understanding, however, at the weekend we were speaking to friends and he is almost 72 and yet to claim his SP. He has only just recently retired but is still doing some contract work (he is a lawyer) he was saying that the SP he hasn't yet claimed is now worth £40,000 and he can take that as a tax-free lump sum.

I hadn't heard of that being an option, but he is usually on the ball with finance so....

eskbanker

happyandcontented wrote: »

That was my understanding, however, at the weekend we were speaking to friends and he is almost 72 and yet to claim his SP. He has only just recently retired but is still doing some contract work (he is a lawyer) he was saying that the SP he hasn't yet claimed is now worth £40,000 and he can take that as a tax-free lump sum.

I hadn't heard of that being an option, but he is usually on the ball with finance so....

A [STRIKE]tax-free[/STRIKE] lump sum is available only to those who reached SP age before 6 April 2016 but chose to defer, as explained at the link I posted above.

Edit: as pointed out below, not actually tax-free!