TFLS from two pensions that exceed my LTA ?

kbundy

I am 58 and I have two pensions to take at 60, one is a final salary the other is a SIPP which over the years has done VERY well, the combined value take me well over the Protected lifetime allowance

When I take the pensions would it be better to take the tax-free lump sums from both pensions to ease the tax burden, than taking both pensions?

Dazed_and_C0nfused

There is TFLS with the DB pension, there will be a PCLS set by the scheme rules.

What options do you have with the DB scheme?

kbundy

Dazed_and_C0nfused said:

There is TFLS with the DB pension, there will be a PCLS set by the scheme rules.

What options do you have with the DB scheme?

The DB Pension will give me a forecast about 6 months before I take it. They have already given me a forecast and its looking at a TFLS of around 20%

Albermarle

kbundy said:

I am 58 and I have two pensions to take at 60, one is a final salary the other is a SIPP, the combined value take me well over the Protected Pension limit.

When I take the pensions would it be better to take the tax-free lump sums from both pensions to ease the tax burden, than taking both pensions?

By protected pension limit , I presume you mean the Lifetime Allowance ( currently £1,073,100 )?

kbundy

Albermarle said:

kbundy said:

I am 58 and I have two pensions to take at 60, one is a final salary the other is a SIPP, the combined value take me well over the Protected Pension limit.

When I take the pensions would it be better to take the tax-free lump sums from both pensions to ease the tax burden, than taking both pensions?

By protected pension limit , I presume you mean the Lifetime Allowance ( currently £1,073,100 )?

Yes correct I have a Protected lifetime allowance of £1,179,134 but my two pensions will be considerably more than this

dunstonh

Taking maximum lump sum on a DB scheme often produces the lower LTA amount.  So, comparing minimum tax-free lump sum with maximum should tell you which is best.

kbundy

dunstonh said:

Taking maximum lump sum on a DB scheme often produces the lower LTA amount.  So, comparing minimum tax-free lump sum with maximum should tell you which is best.

My understanding is that if you exceed the lifetime allowance then any lump sum after that is taxed at 55% and is NOT tax-free is this the case?

So if my DB pension exceeds the Lifetime Allowance on its own then I cannot take any tax-free lump sum from my SIPP??

kbundy

Another question, the 25% tax on income from a pension that is over the lifetime allowance, how is this calculated. Is it 25% of then the sum over the allowance? and is it paid on top of normal PAYE tax?

Albermarle

kbundy said:

Another question, the 25% tax on income from a pension that is over the lifetime allowance, how is this calculated. Is it 25% of then the sum over the allowance? and is it paid on top of normal PAYE tax?

Yes that is correct . So if you are a 20% taxpayer then you in fact pay 40% .
£100 over the limit - 25% LTA tax = £75 minus 20% income tax = £60 

So if my DB pension exceeds the Lifetime Allowance on its own then I cannot take any tax-free lump sum from my SIPP??

Correct.

One point worth noting is that if you take the DB pension early , with a reduced pension, the LTA % of X 20 the pension is based on the reduced pension so lessening its impact .

With such large numbers at stake , you may want to consider taking some professional advice rather than relying on some random strangers on the internet,

zagfles

kbundy said:

Dazed_and_C0nfused said:

There is TFLS with the DB pension, there will be a PCLS set by the scheme rules.

What options do you have with the DB scheme?

The DB Pension will give me a forecast about 6 months before I take it. They have already given me a forecast and its looking at a TFLS of around 20%

Around 20% of what?

zagfles

kbundy said:

Another question, the 25% tax on income from a pension that is over the lifetime allowance, how is this calculated. Is it 25% of then the sum over the allowance? and is it paid on top of normal PAYE tax?

If the DB scheme tips the LTA, the benefits will be actuarily reduced by the scheme to pay the LTA charge. Income is then taxed as normal. You need to ask the scheme what the reduction will be.

If the DC scheme tips the LTA, then the DC scheme pays the 25% charge on the excess at crystallisation. And as above income is taxed as normal. This is basically equivalent to losing the 25% TFLS for any amount over the LTA. For instance, if you have £100k LTA remaining and a £300k SIPP, if you crystallise the lot you'd get £25k TFLS, pay £50k LTA tax, and have £225k crystallised available for drawdown (subject to income tax as normal).

It may be better to put the DB scheme into payment first so the DC takes the LTA hit, but that'll depend on loads of things esp the actuarial reduction applied to the DB.

Note that the TFLS crystallises before the associated pension for LTA purposes.

Google LTA BCE for loads of helpful articles.