LTA Freeze?

zagfles

Mutton_Geoff said:

dunstonh said:

The LTA shouldn't exist but its now impossible to get rid of politically.
It was introduced because of abuse by large cap companies paying off chairman by putting their golden handshake into pensions to avoid taxation.   It initially captured between 10,000 and 20,000 people in the UK.

It was then converted into a wealth tax with a ridiculously low level set. 

Now, any attempt to raise it will be jumped on by the opposition as the Tories helping bankers.  Despite it capturing more middle class and working class people than it was designed to.

Hear hear. I started a pension scheme in my late 20's then later on saved a very large portion of my salary (50%) into a pension scheme for over two decades to provide myself with a comfortable retirement (from which taxes would be paid on my pension expenditure). The LTA was introduced and rose to £1.8m and was promised to be inflation linked. The reverse happened and now I have been caught by it to the tune of 55% which is more than the tax I saved on the way in. I wished I'd ISAd more and been one of the many ISA millionaires although I suspect a retrospective tax coming that way too.

As a matter of interest, how did you do that? Prior to A-day in 2006 you couldn't put much more than 15-20% of salary into a pension, depending on age and pension type.

zagfles

hugheskevi said:

If the LTA starts to apply to ever greater numbers, it really needs to be made more equitable. If it only affects a small number of very well-off individuals they are able to deal with rough edges in the application of the policy, but when those with more normal levels of pension start to encounter LTA issues policies need to be seen as fair and equitable.

For example, I plan to commence my DB pension at age 50, at which point it should be about £20,000 p/a being put into payment and so valued at £400,000 under the LTA. I also have a DC pension of about £200,000 which is also its LTA value. So total LTA usage of £600,000 but the DB pension is massively undervalued on an LTA basis. As things are, I don't have any LTA issues, but with anything like fair valuations I should at least be concerned with the LTA position.

It's unfair but I doubt they'll do anything to fix it. Decreasing the LTA for DB would affect all the highly paid NHS staff and cause political as well as resourcing problems in the NHS. Increasing it for DC would reduce the tax take as well as looking bad politically. So fixing this unfairness would be lose-lose from the govt's POV.

Mick70

Will those already above LTA get protection ?

Mutton_Geoff

zagfles said:

As a matter of interest, how did you do that? Prior to A-day in 2006 you couldn't put much more than 15-20% of salary into a pension, depending on age and pension type.

My current employer I joined in the mid 1990s allowed a max 30% into their DB scheme so I topped up my employees contribution by way of AVCs. Later this increased to 50% so I also increased my AVCs. I don't remember when this was but it could well have been A Day although the 30% was available from when I joined them.

Mick70 said:

Will those already above LTA get protection ?

It's not automatic, you have to apply for it via

https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance

marlot

Mick70 said:

Will those already above LTA get protection ?

Protection has only been granted when the LTA has been reduced.  It's currently only being frozen, so there's no point.
(The prior protections were not linked to inflation).

zagfles

Mutton_Geoff said:

zagfles said:

As a matter of interest, how did you do that? Prior to A-day in 2006 you couldn't put much more than 15-20% of salary into a pension, depending on age and pension type.

My current employer I joined in the mid 1990s allowed a max 30% into their DB scheme so I topped up my employees contribution by way of AVCs. Later this increased to 50% so I also increased my AVCs. I don't remember when this was but it could well have been A Day although the 30% was available from when I joined them.

It must have been some strange setup, or even breaking HMRC rules. If you were in a DB scheme the max employee contribution allowed (inc any AVCs) was 15% pre A-day.

Eg in our DB scheme we paid 5% standard conts on pensionable pay, so we were allowed an extra 10% of pensionable pay plus 15% of non pensionable pay into AVCs. Those were HMRC limits.

Maybe they used some early form of sal sac?

jimi_man

hugheskevi said:

For example, I plan to commence my DB pension at age 50, at which point it should be about £20,000 p/a being put into payment and so valued at £400,000 under the LTA. I also have a DC pension of about £200,000 which is also its LTA value. So total LTA usage of £600,000 but the DB pension is massively undervalued on an LTA basis. As things are, I don't have any LTA issues, but with anything like fair valuations I should at least be concerned with the LTA position.

I always wondered about that. I'm in a similar position - my DB pension was £30,000 p/a when I took it from age 51 and so £600,000 under LTA. I'm also building a Civil Service Alpha pension, it will be around 5 years worth so unlikely to be more than around £3-4k p/a at 65 (I pay EPA to bring the age down). And yet despite the 14 year difference in taking it, it's still valued the same way at 20x. Seems an odd way to value it. 

Mick70

For LTA , a DB pension is Calc at x20 plus the lump sum you receive .  So is that x20 based on the initial first year DB pension ?  What if dB pension increases with rpi each year 
example yr 1 20k pa = 400k LTA 
but if by yr 10 it has risen to 25k pa is it now calc as 500k of the LTA , or not ?
thanks 

Croeso69

Mick70 said:

For LTA , a DB pension is Calc at x20 plus the lump sum you receive .  So is that x20 based on the initial first year DB pension ?  What if dB pension increases with rpi each year 
example yr 1 20k pa = 400k LTA 
but if by yr 10 it has risen to 25k pa is it now calc as 500k of the LTA , or not ?
thanks 

DB has one test at commencement and that is it.

However if the pension increases above 5% then a higher factor than 20 is applied.

Not sure if anything extra happens if an annual increase exceeds 5% somewhere down the line, perhaps the increase in excess of 5% is multiplied by 20 and uses some LTA. Probably not something to worry about in practice?