LTA Basics

pip895

RoadToRiches said:

Am I right in thinking that as long as I do not take anymore than £1,073,100 from tax free pot and drawdown pots combined that there is no lifetime charges? That the pension can continue to grow beyond the limit and it will make no difference. until I have taken £1,073,101 from the pension wrapper?

I used to think this but it’s the point of crystallisation that counts.  You can take as much as you like out of the crystallised pot.  Indeed if you used 100% of your LTA crystallising your fund then you need to keep the crystallised pot at or below it’s value at crystallisation on your 75th birthday [to avoid paying tax].

Significant inflation combined with even average investment returns during the next few years whilst the LTA is frozen, could bring lots of people within its remit.  

Crystallising early seems the best defence.

Albermarle

RoadToRiches said:

All this LTA stuff gives me a saw head trying to figure it out but I run risk of exceeding this myself at some point, if all goes to plan.

Am I right in thinking that as long as I do not take anymore than £1,073,100 from tax free pot and drawdown pots combined that there is no lifetime charges? That the pension can continue to grow beyond the limit and it will make no difference. until I have taken £1,073,101 from the pension wrapper?

What is the significance of being 75?

In simple terms , the taxman is not stupid and knows that some people would just leave their large pension pots uncrystallised to avoid paying LTA . So at 75 they apply the tax ( if you have more than the limit of course ) anyway even if you have not actually crystallised the pot. 
Then as explained above they also tax any growth in crystallised pots as well .

cfw1994

pip895 said:

RoadToRiches said:

Am I right in thinking that as long as I do not take anymore than £1,073,100 from tax free pot and drawdown pots combined that there is no lifetime charges? That the pension can continue to grow beyond the limit and it will make no difference. until I have taken £1,073,101 from the pension wrapper?

I used to think this but it’s the point of crystallisation that counts.  You can take as much as you like out of the crystallised pot.  Indeed if you used 100% of your LTA crystallising your fund then you need to keep the crystallised pot at or below it’s value at crystallisation on your 75th birthday [to avoid paying tax].

Significant inflation combined with even average investment returns during the next few years whilst the LTA is frozen, could bring lots of people within its remit.  

Crystallising early seems the best defence.

Just on the bold bit....remember it is 'only' an excess tax on the bit over the LTA.   If you have funds at that level, I'm willing to bet you are paying some tax on your pension income 🤣

Equally, if the reason you went over that level was due to matched company contributions....well, it was free money anyway 😉

The balancing act trick would be to take sufficient income prior to 75, perhaps to remain below 40% tax-payer, and to drop any 'spare cash' into S&S ISAs for free access later, & being at the LTA limit at 75.....good luck with that balancing act 🤹‍♀️👍

marlot

>> I have agonised a little over the health insurance I gave up.

My elderly neighbour has just had a hip replacement.  He paid from savings and the cost was surprisingly modest.

He's very aware that he only has a limited number of 'healthy years' retirement, and does not want to spend a year or two in an NHS queue.  It made me think, and I'm now much more likely to do the same if ever I need to.

cfw1994

marlot said:

>> I have agonised a little over the health insurance I gave up.

My elderly neighbour has just had a hip replacement.  He paid from savings and the cost was surprisingly modest.

He's very aware that he only has a limited number of 'healthy years' retirement, and does not want to spend a year or two in an NHS queue.  It made me think, and I'm now much more likely to do the same if ever I need to.

It's a good point.   
I do wonder though: how much is 'surprisingly modest' ?    A quick google suggests in the region of £10k in the UK.  (perhaps a lot more in the US)

Just checking Beneden Health (perhaps a half-way house to health insurance).   If you have that, it give 10% off the price of knees and hips: not full cost.....
'tis a tricky one.

Dead_keen

Just as a comparison, my P11D benefit was £1,575 for health insurance (two of us, plus two kids under 25) and last week I was quoted continutation cover for £4,622.48.  This was with "70% No Claims Discount" for me and 63.5% for my partner and a £100 excess.  By limiting the cover even more (narrow group of hospitals, no physio, no mental health cover, etc) the cheapest it got to was £3,660.77. 

The way that their no claims discount works suggests to me that the reality is that you would do you utmost not to claim unless it was very serious (the gross amount would be something like £15,000 per year, with no NCD, before they take account of whatever you claimed for).  

saver_ali

When my husband retired 2 years ago, aged 60, I arranged continuation of private medical with AXA. We just took it out for him. I (fingers crossed) had less health issues so we’ve taken the decision to self insure for me. 

The first quote for him was around £240 pcm. Eventually I got it down to £113, price protected for 2 years. The main reduction was because he can only have hospital procedures if the NHS waiting list is over 6 weeks. He’s had a hip replacement already, so it has been well worth it.

One thing about costs of going private, in our experience, private consultants/hospitals may charge health insurers more than they do for private individuals. My hip replacement in 2010 cost my insurance company £18k; much more than was mentioned above. We had also had an issue about 5 years ago with a cardiologist where we had to pay a contribution and negotiated a lower price than the insurer would have been charged. They asked us not to tell the insurer!

I know that AXA will offer a similar package to new clients, as we recently referred a friend.

saver_ali

@MallyGirl we were in a similar position to you about 8 or so years ago. The thought of my husband getting into LTA territory seemed pie in the sky. After about 6 years of 40k contributions,  added to unexpected growth, he’s now hovering at about 98%. He has now retired, and isn’t making any further contributions. He partially crystallised his SIPP and is in flexi drawdown. 

His situation is slightly more complicated than yours in that as well as DC/SIPP he also has a £17k DB pension payable at 65. I think you said your husband’s was all DC.  

Like you I was a bit nervous about dealing with LTA but over the last few years I’ve grown more comfortable with it all. I have a plan to try and keep under the limit (1 small pot left to take, and probably taking the DB a year early).

I’m more worried about the mechanics of paying any LTA than the calculations. My biggest worry is that Mercer’s administer the DC, and from past experience I know that they are useless. But that’s another story! So the current plan is to pay any LTA via what’s left uncrystallised in the SIPP. 

My husband was also a bit reluctant to retire but I did loads of spreadsheets, working out how long our money would last, and managed to convince him we would be fine. We had set a target of 60, and over time it became increasingly achievable. He did retire at 60, just over 2 years ago. He was still nervous, but has no regrets whatsoever. 

I do a monthly reconciliation of where we are financially, just to make sure we’re on track. Even after 2 years there’s more in his SIPP drawdown account now than when he did a partial crystallisation (something to keep an eye on before he reaches 75).

Re life insurance, he had 4x cover when working, but tbh we don’t feel we need any insurance now. We don’t have a mortgage, and each of us would be fine financially if the other died. Money would be the least of our problems if that happened, which is all the more reason to live for today!

Hope you come up with a plan you are both happy with. 

Albermarle

saver_ali said:

@MallyGirl we were in a similar position to you about 8 or so years ago. The thought of my husband getting into LTA territory seemed pie in the sky. After about 6 years of 40k contributions,  added to unexpected growth, he’s now hovering at about 98%. He has now retired, and isn’t making any further contributions. He partially crystallised his SIPP and is in flexi drawdown. 

His situation is slightly more complicated than yours in that as well as DC/SIPP he also has a £17k DB pension payable at 65. I think you said your husband’s was all DC.  

Like you I was a bit nervous about dealing with LTA but over the last few years I’ve grown more comfortable with it all. I have a plan to try and keep under the limit (1 small pot left to take, and probably taking the DB a year early).

I’m more worried about the mechanics of paying any LTA than the calculations. My biggest worry is that Mercer’s administer the DC, and from past experience I know that they are useless. But that’s another story! So the current plan is to pay any LTA via what’s left uncrystallised in the SIPP. 

My husband was also a bit reluctant to retire but I did loads of spreadsheets, working out how long our money would last, and managed to convince him we would be fine. We had set a target of 60, and over time it became increasingly achievable. He did retire at 60, just over 2 years ago. He was still nervous, but has no regrets whatsoever. 

I do a monthly reconciliation of where we are financially, just to make sure we’re on track. Even after 2 years there’s more in his SIPP drawdown account now than when he did a partial crystallisation (something to keep an eye on before he reaches 75).

Re life insurance, he had 4x cover when working, but tbh we don’t feel we need any insurance now. We don’t have a mortgage, and each of us would be fine financially if the other died. Money would be the least of our problems if that happened, which is all the more reason to live for today!

Hope you come up with a plan you are both happy with. 

I am also in a very similar situation . I did about 6 years of £40K contributions and with the good growth also find myself at around 100% LTA just after retiring . You could say I overshot my target but in fact it did help me to decide to actually retire.
This also includes a DB similar to your husbands and I am taking this early to reduce the LTA impact , although due to the administrator being Mercer it is taking an age to sort out...... 

MallyGirl

Thank you to everyone who has contributed to this thread.
The worked examples really helped to get my head around it all such that the advisor based website articles on the subject now make more sense.
My plan for 'im indoors is now to crystallise the full amount of his SIPP/personal pensions at 55, putting the TFLS cash into ISAs and probably premium bonds initially. This will entail a transfer from 2 old DC pensions into the SIPP and I might leave them as cash for the few months till he hits 55 just to keep the valuation down overall - they are 100% equity at the moment but will have to transfer as cash.
He will continue the workplace pension £40k contribution ongoing for at least a couple more years now that I understand what to monitor. We'll leave enough headroom to make sure he can always get the employer matched contribution aka free money and keep an eye on the 100k salary possibility.
At retirement he will withdraw just under the 40% threshold, adjusting once full SP kicks in at 67. This should avoid falling foul of the crystallised growth test at 75 (subject to loads of assumptions). I will take just under the 20% threshold, pay no tax and do the £3,600 shimmy.
Us both hitting 59 is also the first year beyond the current fix of LTA amount so there might be a bit of wiggle room by then when he crystallises most/all of the workplace pension after hanging up his mouse.
After 75 we can adjust my withdrawals up into 20% tax and take his down a bit to even things out (financially neutral).

We are still looking at the lumpy sal sac options, and associated NI savings, to see what his employer will support - he definitely can't change the pension contributions adhoc like I can.