Thoughts about LTA in your late 20s

ORC

I think that's a conversation for the future but you're right that it's a possible way around the issue. Not sure how common it is though outside of senior folks who have a lot more bargaining power than I do!

AnotherJoe

mw24689 said:

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?

This.   

jamesd

mw24689 said:

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?

ORC said:

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?

You should both learn about VCTs and consider whether they are for you as part of your planning mixture.

They offer more tax relief than pensions, 30% refund of purchase price and you can sell after five years, sell sooner and you have to repay the 30%. Can't get more relief than tax due in the year. Tax exempt capital gains and dividends. Restricted to investing in fairly new and small firms. This makes prices more volatile than most funds. Risk levels vary greatly, from brand new startup specialists to those looking to fund the growth of relatively mature businesses. The usual practice is to let each firm grow until it's mature, then sell. Old VCTs have a stream of those maturing past investments, a new one may have none for many years. VCTs themselves are traded shares in the UK market.

Croeso69

jamesd said:

mw24689 said:

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?

ORC said:

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?

You should both learn about VCTs and consider whether they are for you as part of your planning mixture.

They offer more tax relief than pensions, 30% refund of purchase price and you can sell after five years, sell sooner and you have to repay the 30%. Can't get more relief than tax due in the year. Tax exempt capital gains and dividends. Restricted to investing in fairly new and small firms. This makes prices more volatile than most funds. Risk levels vary greatly, from brand new startup specialists to those looking to fund the growth of relatively mature businesses. The usual practice is to let each firm grow until it's mature, then sell. Old VCTs have a stream of those maturing past investments, a new one may have none for many years. VCTs themselves are traded shares in the UK market.

Hargreaves Lansdown pulled their VCT offerings last year due to Covid. The only place I have found offering them now is something called Wealth Club but not sure about going through a non household name, despite the small discounts on offer.

Albermarle

ORC said:

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!

If you are getting higher rate tax relief, then if you have to pay LTA tax , you have not lost or gained and of course the tax only applies above the limit .
Any employer contributions will still be making a positive contribution.
If you think along the lines that you are benefitting greatly from very generous tax relief on the way in, and over a certain level you have to pay more of it back , then it maybe does not sound that bad . 

princeofpounds

ORC said:

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?

Basically, if you get into a position where your estimated future investment returns will lead you to breach the LTA around pension drawdown age, with minimal/zero further contributions, then that's when you need to think about taking action.

'Action' largely meaning take a pension cash supplement instead of pension contributions. If you're in a position where that is not possible (increasingly rare now as employers are more used to dealing with LTA issues than they used to be), then it's a bit more complex. Then you may want to think about it a bit earlier as you might want to reduce your voluntary pension contributions at an earlier stage. Or you may want to consider other responses like taking the opportunity to de-risk your investments somewhat, perhaps even consider reducing hours or changing jobs to one that does allow a pension cash supplement in rare cases. Or you just accept that you go beyond that marker somewhat and and pay a little more tax; that's no disaster. 

ORC

Thanks - helpful to get different views. 
I think for now I'll keep contributing as I am, and then consider redirecting the funds to my wife's pension/ISA/VCT again in a few years if the landscape is still the same.

Thrugelmir

ORC said:

if the landscape is still the same.

When investing it rarely is. There's a myriad of potential if's and but's on the horizon. The ongoing bill for Covid being the elephant in the room. 

jamesd

Croeso69 said:

Hargreaves Lansdown pulled their VCT offerings last year due to Covid. The only place I have found offering them now is something called Wealth Club but not sure about going through a non household name, despite the small discounts on offer.

Same this year. I'm happy enough with them to use Wealth Club but there are other resellers including ii and bestinvest and quite a few VCTs now do direct online sales themselves to avoid some covid risks, though without discounts except for existing customers.

Croeso69

jamesd said:

Croeso69 said:

Hargreaves Lansdown pulled their VCT offerings last year due to Covid. The only place I have found offering them now is something called Wealth Club but not sure about going through a non household name, despite the small discounts on offer.

Same this year. I'm happy enough with them to use Wealth Club but there are other resellers including ii and bestinvest and quite a few VCTs now do direct online sales themselves to avoid some covid risks, though without discounts except for existing customers.

Can you suggest any with a small initial investment so that I can spread say £2.5k - £5k between 5 different companies, depending on my final tax bill after pension tax relief?