Looming LTA

Thrugelmir

pip895 said:

 However after a few very good years for investments it has dawned on me that if things were to continue at the average growth rate I have experienced over the last 10 years My uncrystallised SIPP will exceed the LTA in only a few years. 

What rate of average growth rate are you expecting?  

pip895

Thrugelmir said:

pip895 said:

 However after a few very good years for investments it has dawned on me that if things were to continue at the average growth rate I have experienced over the last 10 years My uncrystallised SIPP will exceed the LTA in only a few years. 

What rate of average growth rate are you expecting?  

I'm not really expecting the growth to continue, but it has to be considered as a possibility.   If it were to continue at the average rate, then that would be in the region of 10%/annum - that does include adding £3600/year so the true growth is slightly less but still well over 9%.  The LTA being frozen until 2026 doesn't help of course.

pip895

Cus said:

Of course maximise any tax allowances, take out income up to the BR limit, Isa's etc etc, however I don't see why a de-risk is required if you were already comfortable with that risk. Paying tax on something over LTA is better than not being over LTA.  To me it's a little bit like avoiding a higher rate salary job as it pays more tax than a basic rate salary job.

It was more that I could move the higher risk funds to the ISA and some of the safer ones to the SIPP.  So not changing the overall risk just repositioning it.  
In practice I wouldn't like to take this to extremes as part of the reason for holding non equities in a portfolio is to be able to rebalance between them and equity if markets move.

Not sure why you would move into cash..

Thrugelmir

pip895 said:

Thrugelmir said:

pip895 said:

 However after a few very good years for investments it has dawned on me that if things were to continue at the average growth rate I have experienced over the last 10 years My uncrystallised SIPP will exceed the LTA in only a few years. 

What rate of average growth rate are you expecting?  

I'm not really expecting the growth to continue, but it has to be considered as a possibility.   If it were to continue at the average rate, then that would be in the region of 10%/annum - that does include adding £3600/year so the true growth is slightly less but still well over 9%.  The LTA being frozen until 2026 doesn't help of course.

A correction is also a real possibility.  After many decades investing I never work on assumptions. The only certainty is uncertainty.  The time to decide upon a course of action is when you've breached the LTA.  Then you've the opportunity to dial bank on the level of risk (i.e.volatility)  and position the portfolio more defensively. 

pip895

Thrugelmir said:

pip895 said:

Thrugelmir said:

pip895 said:

 However after a few very good years for investments it has dawned on me that if things were to continue at the average growth rate I have experienced over the last 10 years My uncrystallised SIPP will exceed the LTA in only a few years. 

What rate of average growth rate are you expecting?  

I'm not really expecting the growth to continue, but it has to be considered as a possibility.   If it were to continue at the average rate, then that would be in the region of 10%/annum - that does include adding £3600/year so the true growth is slightly less but still well over 9%.  The LTA being frozen until 2026 doesn't help of course.

A correction is also a real possibility.  After many decades investing I never work on assumptions. The only certainty is uncertainty.  The time to decide upon a course of action is when you've breached the LTA.  Then you've the opportunity to dial bank on the level of risk (i.e.volatility)  and position the portfolio more defensively. 

Indeed - If I had to guess I would say a long drawn out period of disappointing equity returns and increasing bond yields - but In reality I haven't got a clue, so its best to consider other possibilities as well.. 

Alexland

pip895 said:

If it were to continue at the average rate, then that would be in the region of 10%/annum

If that happens then we will be overjoyed to pay the LTA charge but seems very unlikely at current asset valuations. Our plans are based on global equities returning just a couple of percent above inflation in the medium term and the freeze bringing the LTA down to the equivalent of around £950k in today's spending power after which it will hopefully start being inflation adjusted again.

pip895

Alexland said:

pip895 said:

If it were to continue at the average rate, then that would be in the region of 10%/annum

If that happens then we will be overjoyed to pay the LTA charge but seems very unlikely at current asset valuations. Our plans are based on global equities returning just a couple of percent above inflation in the medium term and the freeze bringing the LTA down to the equivalent of around £950k in today's spending power after which it will hopefully start being inflation adjusted again.

My base case is exactly the same as yours.  If I don't take income from the SIPP I will still breach the LPA well before 75 and that assumes the LTA increases with inflation!  Better returns do a more thorough job and though I wont really be complaining if it happens, there is no point in paying more tax than you have to..  

Thrugelmir

pip895 said:

Alexland said:

pip895 said:

If it were to continue at the average rate, then that would be in the region of 10%/annum

If that happens then we will be overjoyed to pay the LTA charge but seems very unlikely at current asset valuations. Our plans are based on global equities returning just a couple of percent above inflation in the medium term and the freeze bringing the LTA down to the equivalent of around £950k in today's spending power after which it will hopefully start being inflation adjusted again.

My base case is exactly the same as yours.  If I don't take income from the SIPP I will still breach the LPA well before 75 and that assumes the LTA increases with inflation!  Better returns do a more thorough job and though I wont really be complaining if it happens, there is no point in paying more tax than you have to..  

"Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.” The wise words of Sir John Templeton. Who followed onto to say “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”. 

pip895

Interesting but I would not say this board is overflowing with optimism let alone euphoria - if you exclude the Bit Bugs

pip895

On a slightly separate point as I am accused of being an optimist, what growth scenarios do you use for testing your plans?  Mine are optimistic 7% above inflation (~average of 10 years). Basic 2% above inflation and pessimistic 0% above inflation.  Do you consider losses against inflation too?