Should I go over the SIPP lifetime allowance?

Thrugelmir

zagfles said:

Thrugelmir said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Crystallising also doesn't reduce tax free cash. Again, just invest in the same way and you get exactly the same amount tax free, just grown inside the ISA or wherever instead of continuing to be grown inside the pension. There can be differences due to tax inefficiency of some investments outside a pension until moved into an ISA, though.

Then logic suggests that one should exceed the LTA by a margin and wait for the downturn. Average historic downturn in a bear market is 36%. A fund could be worth £1,675,000 and still remain within the allowance. 

Except that the downturn may not happen immediately, it could happen after 50% further growth. 

Don't confuse real economic growth with higher share prices. Higher share prices may simply mean that that's potential for even greater disappointment on the horizon. 

zagfles

Thrugelmir said:

zagfles said:

Thrugelmir said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Crystallising also doesn't reduce tax free cash. Again, just invest in the same way and you get exactly the same amount tax free, just grown inside the ISA or wherever instead of continuing to be grown inside the pension. There can be differences due to tax inefficiency of some investments outside a pension until moved into an ISA, though.

Then logic suggests that one should exceed the LTA by a margin and wait for the downturn. Average historic downturn in a bear market is 36%. A fund could be worth £1,675,000 and still remain within the allowance. 

Except that the downturn may not happen immediately, it could happen after 50% further growth. 

Don't confuse real economic growth with higher share prices. Higher share prices may simply mean that that's potential for even greater disappointment on the horizon. 

I'm not confusing anything. Nor am I predicting anything. Read the rest of my post.

EdSwippet

Thrugelmir said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Crystallising also doesn't reduce tax free cash. Again, just invest in the same way and you get exactly the same amount tax free, just grown inside the ISA or wherever instead of continuing to be grown inside the pension. There can be differences due to tax inefficiency of some investments outside a pension until moved into an ISA, though.

Then logic suggests that one should exceed the LTA by a margin and wait for the downturn. Average historic downturn in a bear market is 36%. A fund could be worth £1,675,000 and still remain within the allowance. 

Huh? Can you explain? I'm struggling to see how logic led you to this conclusion. Rather than exceeding the LTA and then waiting to catch a downturn, it is far better to crystallise on the way up, and right at the point where the pension hits the LTA.

What you suggest seems to be equivalent to deliberating missing your desired bus stop, going two or three past, getting off the bus there, crossing the road, and then waiting for an unreliable and potentially cancelled bus going the other way to take you back to where you wanted to be in the first place.

Thrugelmir

EdSwippet said:

Thrugelmir said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Crystallising also doesn't reduce tax free cash. Again, just invest in the same way and you get exactly the same amount tax free, just grown inside the ISA or wherever instead of continuing to be grown inside the pension. There can be differences due to tax inefficiency of some investments outside a pension until moved into an ISA, though.

Then logic suggests that one should exceed the LTA by a margin and wait for the downturn. Average historic downturn in a bear market is 36%. A fund could be worth £1,675,000 and still remain within the allowance. 

Huh? Can you explain? I'm struggling to see how logic led you to this conclusion. Rather than exceeding the LTA and then waiting to catch a downturn, it is far better to crystallise on the way up, and right at the point where the pension hits the LTA.

What you suggest seems to be equivalent to deliberating missing your desired bus stop, going two or three past, getting off the bus there, crossing the road, and then waiting for an unreliable and potentially cancelled bus going the other way to take you back to where you wanted to be in the first place.

I agree it's easier to catch a bus than a downturn. Though they both share the same trait of being unreliable. When you least expect it. 

EdSwippet

Thrugelmir said:

EdSwippet said:

Thrugelmir said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Crystallising also doesn't reduce tax free cash. Again, just invest in the same way and you get exactly the same amount tax free, just grown inside the ISA or wherever instead of continuing to be grown inside the pension. There can be differences due to tax inefficiency of some investments outside a pension until moved into an ISA, though.

Then logic suggests that one should exceed the LTA by a margin and wait for the downturn. Average historic downturn in a bear market is 36%. A fund could be worth £1,675,000 and still remain within the allowance. 

Huh? Can you explain? I'm struggling to see how logic led you to this conclusion. Rather than exceeding the LTA and then waiting to catch a downturn, it is far better to crystallise on the way up, and right at the point where the pension hits the LTA.

What you suggest seems to be equivalent to deliberating missing your desired bus stop, going two or three past, getting off the bus there, crossing the road, and then waiting for an unreliable and potentially cancelled bus going the other way to take you back to where you wanted to be in the first place.

I agree it's easier to catch a bus than a downturn. Though they both share the same trait of being unreliable. When you least expect it. 

I remain mystified by your earlier logic. I am now also mystified as to why you felt posting the above as well offers any useful contribution to the discussion.

jamesd

zagfles said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Except that you will need to sell 25% of your pension in a downturn, and it'll sit in cash while the crystallisation paperwork is done, which could take a few weeks. In those few weeks the market might recover and you've just lost the growth on 25% of your pension. Unless your provider allows you to take the 25% in-specie, I don't think any do.

Yes, that's a risk. Best handled if you have cash outside the pension already by investing that when selling the bit inside the pension. The amounts would be too large for most people, though some could use leveraged ETFs for a short time, or options or financial spread bets.

If you do lose out to that, you've still reduced LTA use so have more headroom for future growth so while it's undesirable it's not entirely bad.

zagfles

jamesd said:

zagfles said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Except that you will need to sell 25% of your pension in a downturn, and it'll sit in cash while the crystallisation paperwork is done, which could take a few weeks. In those few weeks the market might recover and you've just lost the growth on 25% of your pension. Unless your provider allows you to take the 25% in-specie, I don't think any do.

Yes, that's a risk. Best handled if you have cash outside the pension already by investing that when selling the bit inside the pension. The amounts would be too large for most people, though some could use leveraged ETFs for a short time, or options or financial spread bets.

If you do lose out to that, you've still reduced LTA use so have more headroom for future growth so while it's undesirable it's not entirely bad.

You think someone who's probably never even heard of such things, or like me has but wouldn't have a clue how to use them, would do so for the first time with £250k+ of their investments?? I doubt even IFAs usually use such things.

Chickereeeee

jamesd said:

zagfles said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Except that you will need to sell 25% of your pension in a downturn, and it'll sit in cash while the crystallisation paperwork is done, which could take a few weeks. In those few weeks the market might recover and you've just lost the growth on 25% of your pension. Unless your provider allows you to take the 25% in-specie, I don't think any do.

Yes, that's a risk. Best handled if you have cash outside the pension already by investing that when selling the bit inside the pension. The amounts would be too large for most people, though some could use leveraged ETFs for a short time, or options or financial spread bets.

If you do lose out to that, you've still reduced LTA use so have more headroom for future growth so while it's undesirable it's not entirely bad.

I crystallised  50% of my SIPP with AJ Bell, and completed all the paperwork without selling. Eventually, I had a message saying something like: 'all done, once you have cash in the account, we will transfer it to your bank account'. So I was only in cash for a few days.

On selling after a crash: you get a lower cash sum, which you then have to invest outside of a tax wrapper (if you have used your ISA allowance).

jamesd

zagfles said:

jamesd said:

zagfles said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Except that you will need to sell 25% of your pension in a downturn, and it'll sit in cash while the crystallisation paperwork is done, which could take a few weeks. In those few weeks the market might recover and you've just lost the growth on 25% of your pension. Unless your provider allows you to take the 25% in-specie, I don't think any do.

Yes, that's a risk. Best handled if you have cash outside the pension already by investing that when selling the bit inside the pension. The amounts would be too large for most people, though some could use leveraged ETFs for a short time, or options or financial spread bets.

If you do lose out to that, you've still reduced LTA use so have more headroom for future growth so while it's undesirable it's not entirely bad.

You think someone who's probably never even heard of such things, or like me has but wouldn't have a clue how to use them, would do so for the first time with £250k+ of their investments?? I doubt even IFAs usually use such things.

Those who couldn't or didn't want to wouldn't be included in the "some" group.

zagfles

Chickereeeee said:

jamesd said:

zagfles said:

jamesd said:

Why would being in a downturn be a bad time to crystallise? It's the best of times. You use less of the lifetime allowance while crystallising and then get the benefit of any recovery growth on the 25% outside the pension instead of where it'll increase lifetime allowance usage. The mere fact of crystallising doesn't change your investments, you just buy the same things with the 25% after crystallising if you don't want to spend any money. And since they are the same things, they recover in just the same way as if they had been inside the pension.

Except that you will need to sell 25% of your pension in a downturn, and it'll sit in cash while the crystallisation paperwork is done, which could take a few weeks. In those few weeks the market might recover and you've just lost the growth on 25% of your pension. Unless your provider allows you to take the 25% in-specie, I don't think any do.

Yes, that's a risk. Best handled if you have cash outside the pension already by investing that when selling the bit inside the pension. The amounts would be too large for most people, though some could use leveraged ETFs for a short time, or options or financial spread bets.

If you do lose out to that, you've still reduced LTA use so have more headroom for future growth so while it's undesirable it's not entirely bad.

I crystallised  50% of my SIPP with AJ Bell, and completed all the paperwork without selling. Eventually, I had a message saying something like: 'all done, once you have cash in the account, we will transfer it to your bank account'. So I was only in cash for a few days.

On selling after a crash: you get a lower cash sum, which you then have to invest outside of a tax wrapper (if you have used your ISA allowance).

As above, even a few days could wipe out 10-15% if you successfully call the bottom of a downturn. The thing about crashes is that the market tends to be very volatile around those times.