Exceeding LTA

Spinybif

Age 60.  Currently own own home and holiday home, no mortgage.
196k taken out of DC  pension (25%) and invested in Fidelity with gradual transfer to stocks & shares ISA for tax free income.  £580k still invested in Standard Life SIPP

Currently working 6 days per week in job I enjoy but looking to reduce days gradually over next 5 years.

Old DB pension becomes payable in 3 months.  Options :-
Pension of £14.600 rising in line with RPI (max 3%)
Take 25% lump sum, £64k  (Will exceed LTA) with reduced pension of £10400)

Both offer surviving spouse pension of £7600 rising with RPI

Offered lump sum of £490k.

Am struggling to work out what I will pay in penalties for exceeding LTA and when they are payable in each scenario

Would appreciate any thoughts.

marlot

You should have a certificate from the first crystallisation saying exactly what percentage of the LTA has been used.  Usually to two decimal places.  
A DB is multiplied by 20, plus any lump sum.
So either £14,600 * 20 = £292k
Or £10,400 * 20 + 64,000 - £272k
Whether/how much either tips you over the LTA depends on what percentage you've already used.  And whether you have any protections.

jamesd

When did you take the 25% and what percentage of the lifetime allowance did it use?

LTA charge is payable when the benefit is taken. Tax free lump sum or taking DB income and optional lump.

Spinybif

78% of LTA used.  Taken out just before budget this year.

Marcon

Make 3 transfers from your SIPP to 3 more individual SIPPs, each under £10K. Cash them in under the small pots regime (need to be under £10,000 each at the time you cash in the whole small pot) and that will use 0% of the LTA, effectively increasing your LTA by up to £30,000.

cfw1994

Marcon said:

Make 3 transfers from your SIPP to 3 more individual SIPPs, each under £10K. Cash them in under the small pots regime (need to be under £10,000 each at the time you cash in the whole small pot) and that will use 0% of the LTA, effectively increasing your LTA by up to £30,000.

& this assumes you have not touched the SIPP (which I *think* is the case here)..you cannot make a partial transfer if you have taken any (crystallised) from it already.

Marcon

cfw1994 said:

Marcon said:

Make 3 transfers from your SIPP to 3 more individual SIPPs, each under £10K. Cash them in under the small pots regime (need to be under £10,000 each at the time you cash in the whole small pot) and that will use 0% of the LTA, effectively increasing your LTA by up to £30,000.

& this assumes you have not touched the SIPP (which I *think* is the case here)..you cannot make a partial transfer if you have taken any (crystallised) from it already.

I don't know about Standard Life's terms, but you can make a partial transfer from AJ Bell if you've already 'touched' the SIPP: 

If you've already accessed your SIPP, the part of the SIPP you've accessed must be transferred in full to the new pension scheme. If part of your SIPP hasn't been accessed, you can choose how much of the unaccessed part you want to transfer.

https://www.youinvest.co.uk/faq/can-i-transfer-my-sipp-another-pension-provider

Spinybif

What I am struggling with his how penalty works for excess over LTA.  Do they take 25%of amount over then pension paid on balance or is there another way.  In my case amount over LTA if I take a cash transfer is £197k. 
Thanks

Albermarle

Spinybif said:

What I am struggling with his how penalty works for excess over LTA.  Do they take 25%of amount over then pension paid on balance or is there another way.  In my case amount over LTA if I take a cash transfer is £197k. 
Thanks

Taking  a cash transfer , or Cash equivalent transfer Value to use the jargon,  and giving up all your rights to a guaranteed pension from your DB pension is a big decision in itself and the LTA aspect is only part of the equation .
Are you actually contemplating doing this ?
Normally having a large DC pot invested in the markets, and a guaranteed DB pension would be a very nice  sweet spot for many people.

Spinybif

That is my thinking currently but IFA had suggested seriously worth considering. Just trying to get figutlres together

Marcon

Spinybif said:

That is my thinking currently but IFA had suggested seriously worth considering. Just trying to get figutlres together

If your IFA is suggesting it is seriously worth considering, then they could be expected to have explained to you the impact on the LTA and how it would 'work' since this is an issue which is worrying you. Ask them!