Lifetime allowance calculation

JoLam

I need help on how a lump sum withdrawal will affect my LTA? and what my investment strategy should be going forward.? I’m approaching 70 and I’ve used 65% of my LTA through a DB pension and from taking 2/3rds of my tax free lump sum when my SIPP was valued at £600,000. The SIPP is now valued at £800,000. I would value your thoughts on the 2 questions above. 

Albermarle

So when your SIPP was worth £600K , you took £100K  Tax free cash ?
So you would have had £500K  left - £200K uncrystallised and £300K crystallised .

Now this £500K has grown to £800K , is that what you are saying? Have you added any more to it in the meantime and do you know how much of the £800K is now crystallised or uncrystallised ?

With a SIPP of £800 K , you are asking investment (and LTA advice) from random strangers on the internet . Have you considered taking professional advice ?

jamesd

What is the value of the uncrystalised part? What is the value of the crystallised part? Somehow the pension firm has to track this for you so you know your situation.

JoLam

Thanks for this. You summarise correctly. I’ve not added anything significant since the Chrystallisation. The provider tells me the pot is 400,000 chrystallised and 400,000 unchrystallised. So on that basis my final 25%would be 100,000 - or have I missed something. 

JoLam

Thank you, yes the provider has told me to take professional advice and I’m in the process of doing this - It’s just helpful to understand how this LTA works...and it means I understand better the questions to ask.

Albermarle

Seems a bit odd that they are exactly the same .

In any case whatever the uncrystallised figure is, you can take 25% tax free ( unless restricted by the LTA- see below) then the whole of the remainder will be crystallised and subject to income tax for any withdrawals.

If it is exactly £400k then you could take £100K tax free and the crystallisation of £400K would contribute 37.27% to your LTA .

So if you add this to 65% it would take you over LTA , so in fact you would not be able to take out the full £100K tax free.

Just less than £94K I think ,and this would leave around £24K uncrystallised, but better wait for someone else to confirm  If I am right or not.

jamesd

Given that you're less than 30k in excess I suggest first transferring 30k to Hargreaves Lansdown where for no charge they will let you take out three small pots of £10k each. This doesn't count towards the lifetime allowance.

While initiating that, maybe take a tax free lump sum of say £80,000 to get a bit of protection against growth taking you over, then as soon as the 30k has left do the rest.

jamesd

JoLam said:

Thanks for this. You summarise correctly. I’ve not added anything significant since the Chrystallisation. The provider tells me the pot is 400,000 chrystallised and 400,000 unchrystallised. So on that basis my final 25%would be 100,000 - or have I missed something. 

Can you say which provider it is? Causing 200 uncrystalised and 300 crystallised to become 400/400 seems to make them one to avoid for anyone with lifetime allowance charge potential because it has caused you to potentially just barely avoid the charge when you would have expected to have £80k of allowance left over for the age 75 test.

Perhaps worth contacting them to double check that they really have so radically shifted the uncrystalised to crystallised balance and how they reached that conclusion.

Albermarle

To add to above , when you speak to your advisor , it is called the 'Small Pots Rule'

It is a way for people with small pots ( less than £10K) to take them without having future effect on ability to make pension contributions .
And this can be done normally up to 3 times . A side effect/loophole is that you can also do this by splitting of 3x £10K small pots from a big pot, and it does not contribute to LTA % . When you take the small pots you get 25% tax free and 75% taxable as normal. 
Only one mainstream provider -Hargreaves Landsdown is willing /can be bothered to do this .
It is probably a lot of work for little reward for them  and I think it is true to say as it is using a loophole against the spirit of the law, so not many/any other providers seem willing to do it. .

It is a relatively little known procedure and will be interesting if your advisor is aware of it. 

JoLam

Really appreciate all your comments. I’ve been managing this on my own and it’s so helpful to find people that have even heard of lifetime allowance. My provider is AJBell and I do wonder if they are right on the chrystallisation figures - my pot was not split at the time ( how do I know that the unchrystallised amount grew the same?).  To make it worst I had fixed protection 2014 but stupidly contributed 2880 for two years as I misunderstood the 2015 pension reforms and thought it allowed for the first time this contribution to be made. AJBell had my FP cert - Revenue also contributed....but I accept I goofed there and I’m in the process of writing to Revenue now.

JoLam

Thanks also for the small pots comment. I had no idea this was possible. HL are one of the people I’m discussing getting advice from so I can definitely raise this. If you think I’m a complete idiot I can only say I was going through a ghastly divorce at the time and I had no idea that I would actually be able to get this pension sorted -obviously did and managed it well enough to have a ‘problem’ now. Thanks once again for your help.