Lifetime Allowance Management

JamesP8

Planning to take DC pension early via drawdown, but am already aware that upon taking DB pension in a few years time that I will have exceeded the LTA, based upon current DC pot, then also projected DB. Present thinking would be to crystallise a small percentage of the LTA at start of drawdown (taking a tax free element, annual personal allowances, perhaps also some taxable income of crystallised value) and leaving maximum amount of LTA, which should increase during the intervening period, to absorb as much as possible of the DB pension to maintain its guaranteed value (rather than taking early). LTA extra tax charge would then fall to DC/drawdown value at the future BCE. Feasible approach?

Albermarle

Are you aware that by taking a DB pension early that you reduce its LTA impact ?
DB pensions are already lightly treated by LTA rules and the fact that the 20X rule is still applied even to a reduced pension taken early is another concession.

shinytop

JamesP8 said:

Planning to take DC pension early via drawdown, but am already aware that upon taking DB pension in a few years time that I will have exceeded the LTA, based upon current DC pot, then also projected DB. Present thinking would be to crystallise a small percentage of the LTA at start of drawdown (taking a tax free element, annual personal allowances, perhaps also some taxable income of crystallised value) and leaving maximum amount of LTA, which should increase during the intervening period, to absorb as much as possible of the DB pension to maintain its guaranteed value (rather than taking early). LTA extra tax charge would then fall to DC/drawdown value at the future BCE. Feasible approach?

It's pretty much what I did/am doing, although I also did what Albermarle suggests and took the DB pension slightly early to lower the LTA contribution.  The actuarial reduction was quite favorable.  I did not want my DB pension to be subject to an LTA excess tax.  I am going to be able to crystallise all of my DC pension just sneaking under the LTA. I'll then try and avoid the age 75 BCE by taking growth as income.       

Albermarle

shinytop said:

JamesP8 said:

Planning to take DC pension early via drawdown, but am already aware that upon taking DB pension in a few years time that I will have exceeded the LTA, based upon current DC pot, then also projected DB. Present thinking would be to crystallise a small percentage of the LTA at start of drawdown (taking a tax free element, annual personal allowances, perhaps also some taxable income of crystallised value) and leaving maximum amount of LTA, which should increase during the intervening period, to absorb as much as possible of the DB pension to maintain its guaranteed value (rather than taking early). LTA extra tax charge would then fall to DC/drawdown value at the future BCE. Feasible approach?

It's pretty much what I did/am doing, although I also did what Albermarle suggests and took the DB pension slightly early to lower the LTA contribution.  The actuarial reduction was quite favorable.  I did not want my DB pension to be subject to an LTA excess tax.  I am going to be able to crystallise all of my DC pension just sneaking under the LTA. I'll then try and avoid the age 75 BCE by taking growth as income.       

Pretty much what I am planning as well. 

JamesP8

shinytop said:

JamesP8 said:

Planning to take DC pension early via drawdown, but am already aware that upon taking DB pension in a few years time that I will have exceeded the LTA, based upon current DC pot, then also projected DB. Present thinking would be to crystallise a small percentage of the LTA at start of drawdown (taking a tax free element, annual personal allowances, perhaps also some taxable income of crystallised value) and leaving maximum amount of LTA, which should increase during the intervening period, to absorb as much as possible of the DB pension to maintain its guaranteed value (rather than taking early). LTA extra tax charge would then fall to DC/drawdown value at the future BCE. Feasible approach?

It's pretty much what I did/am doing, although I also did what Albermarle suggests and took the DB pension slightly early to lower the LTA contribution.  The actuarial reduction was quite favorable.  I did not want my DB pension to be subject to an LTA excess tax.  I am going to be able to crystallise all of my DC pension just sneaking under the LTA. I'll then try and avoid the age 75 BCE by taking growth as income.       

Thanks for this, which is very helpful. I'm planning to check the DB pension annually to review the position of possibly taking it earlier and reducing its LTA impact, if the numbers suit. 

ianthy

I'm wrestling with the same question - is my annual pension drawdown enough to avoid the LTA. Sorry not intending to hijack your post. 

Albermarle

ianthy said:

I'm wrestling with the same question - is my annual pension drawdown enough to avoid the LTA. Sorry not intending to hijack your post. 

I think one point to keep in mind is that there is a difference between being say £100K over the LTA and say £800K .
In the first instance you only pay the extra tax on approx. 10 % of your pension . It is not really sensible to organise your pension investments , income etc solely around avoiding a relatively small amount of extra tax . Especially considering your pension will have benefitted from favourable tax treatment during its life. As the saying goes 'don't let the tax tail wag the investment dog'