lifetime pensions allowance

beeza650

Right that makes it even worse then, sounds like exceeding LTA seems to be a very bad plan then right?

shortseller09

No, £60 invested plus 40% relief on the way in = £100 in pension, and then remain under the higher rate threshold on the way out, you get £100 less 25% LTA penalty = £75, less 20% income tax = £60. So you're back where you started, no worse off, but crucially you have gained (hopefully) from the additional investment.

Albermarle

shortseller09 said:

No, £60 invested plus 40% relief on the way in = £100 in pension, and then remain under the higher rate threshold on the way out, you get £100 less 25% LTA penalty = £75, less 20% income tax = £60. So you're back where you started, no worse off, but crucially you have gained (hopefully) from the additional investment.

Yes exactly , and you gain massively from the 40% relief ( which is an extremely generous tax break by any measure ) for the £1.07 million below the LTA . So if you go over that limit and have to pay some back then seems fair enough really - at best a luxury problem.

beeza650

Though I could invested 20 of the 40k pension allowance in an ISA and access it before 55 and/or not have to worry about higher rate tax band when I’m cashing it in to spend. Yes there are other benefits to pension, potentially the biggest of relevance to me is that it passes free of inheritance tax. The tax saving on pension investment growth alone seems like it’s not really worth it for the restrictions that entail. I will probably go all spreadsheet scenario bad !!!!!! on this later 😜 (wow that's a fussy word filter!

beeza650

Albermarle said:

shortseller09 said:

No, £60 invested plus 40% relief on the way in = £100 in pension, and then remain under the higher rate threshold on the way out, you get £100 less 25% LTA penalty = £75, less 20% income tax = £60. So you're back where you started, no worse off, but crucially you have gained (hopefully) from the additional investment.

Yes exactly , and you gain massively from the 40% relief ( which is an extremely generous tax break by any measure ) for the £1.07 million below the LTA . So if you go over that limit and have to pay some back then seems fair enough really - at best a luxury problem.

You really are on the wrong website aren't you - this is Money Saving Expert - not Robin Hood fan club.

Cus

beeza650 said:

Though I could invested 20 of the 40k pension allowance in an ISA and access it before 55 and/or not have to worry about higher rate tax band when I’m cashing it in to spend. Yes there are other benefits to pension, potentially the biggest of relevance to me is that it passes free of inheritance tax. The tax saving on pension investment growth alone seems like it’s not really worth it for the restrictions that entail. I will probably go all spreadsheet scenario bad !!!!!! on this later 😜 (wow that's a fussy word filter!

Are you getting any employer contribution? If so then its still financially better off than an ISA even if you pay 40% tax on withdrawal. But ISA's have other benefits of course.

beeza650

Cus said:

Are you getting any employer contribution? If so then its still financially better off than an ISA even if you pay 40% tax on withdrawal. But ISA's have other benefits of course.

Yes some, 5% of my base salary. I can see how it's financially better -  it's just the margin of "better" vs the restrictions of a pension and delayed benefit from the cash don't stack up anywhere near as strongly as they do below the LTA - nowhere near. Right? 

Adyinvestment

I was under the impression you can do the below to not pay any LTA penalty? 

Crystallise before you reach the LTA (assuming 55 or whatever the age is at that time)
Keep withdrawing any profit each year (or whatever timeframe suits you) until 75 so your pot is not any larger than when you have crystallised, yes you will pay normal bands income tax on what you withdraw but that would only be fair.

Is that correct?

Cus

beeza650 said:

Cus said:

Are you getting any employer contribution? If so then its still financially better off than an ISA even if you pay 40% tax on withdrawal. But ISA's have other benefits of course.

Yes some, 5% of my base salary. I can see how it's financially better -  it's just the margin of "better" vs the restrictions of a pension and delayed benefit from the cash don't stack up anywhere near as strongly as they do below the LTA - nowhere near. Right? 

Agree, not much in it when over the LTA and then getting hit with 40% on withdrawal. If so, maybe balance the ISA and pension so you just hit the LTA. Having the lump in the ISA gives you flexibility to take earlier. 

beeza650

I'm just doing a bit of planning for the future - sadly I don't really enjoy my job/career so I'm keen to understand how much longer I need to pay into my pension and/or other investments. With £350k there now and 10x£40K to come (let's say) - we'll be at £750K and with compound growth and subsequent growth during drawdown it could reach lifetime allowance territory. Withdrawing to the up to 40% bracket so something between £40,890 (after state pension age) to £50k before that then that pot is going to last 25+ years.
Retirement before 60 is looking quite realistic....nice