Life time allowance and Tax free lump sum

tetrarch

Mick70 wrote: »

The LTA should be reviewed as it penalIses DC pensions but rarely impacts DB pensions ? The two should be treat the same

This is NOT going to happen. The law-of-unintended-consequences has already kicked-in here. The 20x DB assessment has already massively hit behaviour of NHS doctors. Doing anything else that would negatively affect the incentives of doctors to work would be political suicide..

I have just turned 55 and am actively taking my TFLS. I do not trust the government to keep their mitts of this large chunk of untaxed income in the name of "protecting people from themselves"

Regards

Tet

Mick70

Doglegger wrote: »

Are you still cashing out of your DB mate? If so then a bit strange complaining about the tax situation of one against the other!

halfway through the process , regardless though still say the LTA hits DC holders more than DB, will be very small minority of DB holders who are affected

Doglegger

Mick70 wrote: »

halfway through the process , regardless though still say the LTA hits DC holders more than DB, will be very small minority of DB holders who are affected

Yes, it undoubtedly does but if you feel it puts you at a financial disadvantage why go through with the transfer? I would most likely think that you're doing it because you think you will be much better off cashing in. So, again, I can't see why you would complain about the tax handling if you know you are going to be quids in by going down the "unfair" route!
Those that have only DC and contributed to those I have some sympathy with. Not anybody doing a transfer which is something I've thought long and hard about myself.

Malthusian

Mick70 wrote: »

The LTA should be reviewed as it penalIses DC pensions but rarely impacts DB pensions ? The two should be treat the same

There is some element of swings and roundabouts as very big DB pensions get hit by 40% tax which can't be avoided. Whereas very big DC pensions can be drawn more flexibly to maximise use of allowances and used as an inheritance vehicle.

It is clear that the LTA should be abolished (it is ludicrously complicated and pointless because very large pension funds will eventually be taxed in other ways) but the Tories don't want "Tories give tax break to millionaires" headlines.

I would lay an outside bet that it will eventually be abolished and the quid-pro-quo will be the reintroduction of a tax on death benefits. I can't see them leaving pensions as the highly tax-efficient inheritance vehicle that they have been post-2014.

zagfles

Malthusian wrote: »

There is some element of swings and roundabouts as very big DB pensions get hit by 40% tax which can't be avoided. Whereas very big DC pensions can be drawn more flexibly to maximise use of allowances and used as an inheritance vehicle.

It is clear that the LTA should be abolished (it is ludicrously complicated and pointless because very large pension funds will eventually be taxed in other ways) but the Tories don't want "Tories give tax break to millionaires" headlines.

I would lay an outside bet that it will eventually be abolished and the quid-pro-quo will be the reintroduction of a tax on death benefits. I can't see them leaving pensions as the highly tax-efficient inheritance vehicle that they have been post-2014.

Another quid-pro-quo would be having flat rate tax relief eg 25%. That would make sense from a lot of angles. The whole point of the LTA is to prevent tax benefits from excessive pension saving.

A flat rate of tax relief will have a very similar disincentive - anyone paying higher rate tax in retirement will be penalised through paying 40% tax on pension income when they only got 25% tax relief. The LTA is set (certainly for DB) at approximately the level at which you'd pay higher rate tax on pension income.So with flat rate relief, there'd be no need for the LTA. Or even the AA, possibly!

Andrew31

Mick70 wrote: »

The LTA should be reviewed as it penalIses DC pensions but rarely impacts DB pensions ? The two should be treat the same

It applies to both as i am sure you are aware, if someone takes an over inflated DB scheme CETV then they should expect to pay the appropriate tax.

Andrew31

FreedomFromDebt wrote: »

I have £3 million in my pension.

Is it best to take it all out in a lump sum?

(3M - (25%*1.073M (LTA))) * 45% + (25%*1.073M(LTA)) = 1.49M

£1.5 million, i.e. half
Or take it out in smaller drawdown's?

Wow you have £3mil pounds in your pension yet you have been struggling with unsecured debt? How much is your actual debt?

for the £3mil, lets call the LTA £1 for ease. You can get £250k PCLS Tax free and £500PCLS Taxable at 55% so thats £525k.

Income will be £750k Taxable lets imagine that is taxed at 45% so £412k in the bank plus £1.5mil with an LTA charge of 25% plus income tax at probably 45% so £506k

Total so about half to you and half to the tax man.

I suggest you wouldnt need a tax advisor, just go for !!!:rotfl::money:

Mick70

Andrew31 wrote: »

It applies to both as i am sure you are aware, if someone takes an over inflated DB scheme CETV then they should expect to pay the appropriate tax.

yes I am aware it applies to both but for DB the calc is simply a multiple of 20 being used.
Therefore you would need an annual DB pension of above £50k to be affected, which would suggest an annual salary of above £100k . If you want the treatment to be similar then DB should be say 25 multiple.

Far more people will be caught out who have DC pots , that was the only point I was making.

Inflated CETV is entirely another issue and many on here have had low CETV quotations and most people in DC schemes will have been so all their lives there will have been no transfer from DB schemes. In times when the govt is trying to encourage all workers to pay as much as can into their pensions.

MarkCarnage

The LTA should be reviewed as it penalIses DC pensions but rarely impacts DB pensions ? The two should be treat the same

Presumably you were aware of this when you made your decision to transfer? If not, you should have been. I was aware that I might be 'borderline' despite a higher level of FP, and will likely go slightly over due to investment performance but it's not the worst problem to have.

Mick70

MarkCarnage wrote: »

Presumably you were aware of this when you made your decision to transfer? If not, you should have been. I was aware that I might be 'borderline' despite a higher level of FP, and will likely go slightly over due to investment performance but it's not the worst problem to have.

Hi Mark , yes aware of the LTA , it’s just a general comment / observation rather than for my own circumstances