Thoughts about LTA in your late 20s

mw24689

Hi

I'm 29 and have £80k invested in my employer pension. I'm a higher rate tax payer and am currently contributing around £2000 / month including employer contributions. Assuming my contributions stay the same and that the market returns 4% pa (neither of which is guaranteed), I would exceed the existing LTA around 50. 

Is this something I should worry about now, or just accept that there are too many variables at play over the next 20 years and consider myself fortune if I do eventually exceed the LTA?

For completeness, I also pay £1k /month into a S&S ISA and have around a £75k mortgage fixed at 2.04%.

Any perspectives?

Linton

In 20 years time who knows what the LTA limit will be.  Presumably it will have increased or it could have been removed completely.  I think you can safely ignore the LTA until your pot is well over 50% there which at £24K/year will take some time.

Albermarle

or just accept that there are too many variables at play over the next 20 years and consider myself fortune if I do eventually exceed the LTA?

This . Plenty of time to worry about such luxury problems when you get older.

TVAS

What is the point of worrying about something that you have zero control over. All you need to understand is having money even though it may be taxed is way better than having no money.

You may remember years ago when the Tories came to power they decided to make council house tenants even poorer. They said that those in a 3 bed house where the kids have left should move to a 1 bed flat so that house could be used for a bigger family. I agreed with that. Until one realised there were no 1 bed flats in the area and disabled people got penalised for using the box room for the wheelchair or oxygen tanks. In contrast the Lib Dems wanted to have a mansion tax on high value properties . Guess what? We got a plethora old these old codgers looking like victims (head to one side looking sad and pathetic) saying they could not afford to pay higher council tax.

Which position would rather be in council tax and poor OR living in a 2 million property no mortgage where you can move to a 1 million property and pay higher council tax easily. 

Conclusion please worry about something you can actually change.

princeofpounds

Personally I think the LTA is more likely to come down yet further than go up, as an indirect tax hike on higher earners. But anyway...

- Don't worry about it too much. It is inefficient to exceed it but it is not a disaster. 

- There isn't much point hitting it well before you reach the age at which you can draw down (57 in your case, unless state pension age changes which it probably will, a little).

- But the specific timing of your contributions can of course matter in terms of the tax savings you make given your tax rate at any point in time, so don't assume you have to follow a smooth glide path, contributions whilst at higher tax rates are quite efficient. Plus, rules can always change and may become less generous, especially to higher rate tax payers, so nothing to stop you getting on with building your pot.

- You have many years ahead to vary your contributions, up or down, to account for how market conditions affect your portfolio.

- Most employers should be able to offer you a cash supplement instead of a pension contribution, so if you end up with too much you can often ask for lower contributions in future, but higher (taxed) income.

Sounds like you are in good shape, so don't feel you have to worry about it too much. Just check in on your glidepath every year or so.

Out of interest - what do you do for your financial position to be so strong in your late 20s? If you are happy to answer, know it's a personal question.

mw24689

Thanks - useful answers from everybody and confirms that I should just chill!

To answer princeofpounds, I work in professional services with a protected title.

Albermarle

Also, it is quite likely there will be some unexpected events in your life in the next 30 years . Some positive and some probably less so. Maybe then LTA will seem relatively unimportant compared to other issues in your life. 

Thrugelmir

Worry about the LTA once you actually hit it. Life has a habit of throwing curved balls when you least expect them. Likewise highly unlikely that the next 21 years will generate a 4% linear compound rate of growth. Bound to be many twists and turns along the way. 

[Deleted User]

Would second all of the above.

If you focus on squirming around the taxman, you risk losing 90% of your potential - someone who knows the price of everything and the value of nothing.

.Awful as it is to be advised to "be 29" - hoarding money is an old man's game.

ORC

I'm in a similar position but a bit older, 38. It sounds like conventional wisdom is to relax, but at what point does that change?

For instance, I am currently contributing more than is necessary to get the maximum employer match, so would you really wait until you're nearly at / at the LTA before redirecting to an ISA?

Not sure if this is relevant for the OP, but one option for me is to reduce my pension overpayment and increase my wife's (as she won't get close to the LTA). She has a lower marginal tax rate though, so it's a tricky one!

Thrugelmir

ORC said:

For instance, I am currently contributing more than is necessary to get the maximum employer match, so would you really wait until you're nearly at / at the LTA before redirecting to an ISA?

Would your employer provide you with an alternative benefit if you forewent the pension matching?