continue AVC contributions when over LTA? 40% Tax Payer

gibbo888

Hi i am in the very enviable position to be above the LTA already. 
i have a transferred  DB into a SIPP and that is approaching LTA on its own.
i have also a continuing DC scheme which is at a 20% contribution level (myself and company). 
These combined put me currently 10% over LTA.
I am also paying into an AVC through work, at £1000 pm (gross).
My thinking is that as a higher rate tax payer i am getting 40% relief on my AVC (no salary sacrifice or other relief for the AVC)
so is it better to stop this AVC and start putting it into ISA's and forgo the 40% relief?
I am not quite sure on the maths which way would be better? carry on and pay the LTA charge if any in the future, or stop now and divert funds to other areas? can anyone enlighten me?

Albermarle

As a 40% taxpayer each £100 going into your pension costs you £60.
When you take the £100 as income  , you will pay a 25% LTA charge so £75 left . If you are a basic rate taxpayer in retirement you will lose another 20%, so £60 left . So no gain or loss compared to an ISA,
If you are a 40% taxpayer in retirement then you will lose.

Thrugelmir

gibbo888 said:

i have a transferred  DB into a SIPP and that is approaching LTA on its own.

Was this pointed out to you when you sought transfer advice? 

fizio

I am in the same boat on LTA so stopped all contributions unless they were free (company) or matched. No point paying 55% tax on the way out. I also decided to decline the transfer-out despite it being a great deal simply because it was putting me further past LTA. Def an area where you need some advice (ideally before doing anything)

Albermarle

fizio said:

I am in the same boat on LTA so stopped all contributions unless they were free (company) or matched. No point paying 55% tax on the way out. I also decided to decline the transfer-out despite it being a great deal simply because it was putting me further past LTA. Def an area where you need some advice (ideally before doing anything)

If you take as income the tax rate is equivalent to 40% tax for a basic rate taxpayer . Only 55% if you take as a lump sum , or if you are a 40% taxpayer in retirement.

gibbo888

Albermarle said:

As a 40% taxpayer each £100 going into your pension costs you £60.
When you take the £100 as income  , you will pay a 25% LTA charge so £75 left . If you are a basic rate taxpayer in retirement you will lose another 20%, so £60 left . So no gain or loss compared to an ISA,
If you are a 40% taxpayer in retirement then you will lose.

Thank you for that Albermarle.

Couldnt get my head around the maths. 
Seems I should start contributing to the ISAs now then and access the situation nearer the time. It's just hard psychology to see the 40% "loss" in your pension and put it in ISAs as tax paid. I understand the logic and the reasons though. 

gibbo888

Thrugelmir said:

gibbo888 said:

i have a transferred  DB into a SIPP and that is approaching LTA on its own.

Was this pointed out to you when you sought transfer advice? 

Yes mate it was clearly spelt out to me. But I used the transfer as execution only so didn't have any good up advice to Lean on afterwards. I am a few years off yet. So didn't want to pay an IFA fees for my "growth" period. I will be taking advice nearer the time, to make sure I have understood the facts clearly. 
Thanks.