Who can advise on pension LTA and when to start drawing down?

15Manor

I have read (and re-read) varied information about the pensions LTA and crystallisation events but cannot understand it fully. I want to understand if it is worth starting to withdraw 'something' early (currently 55) before the pot increases any further above the LTA or not? I really need someone to explain the tax implications. To me this seems like I need something like a pensions tax accountant? Don't feel like I need an IFA, in as I am happy to choose my own investments, but could I pay an IFA a one-off fee to explain this properly to me? I just need someone to explain it in plain(er) English. Can anyone point me in the right direction?

pip895

To get useful advice on here you will need to give a few more details.  Are you retired or still adding to your pension do you pay 40% tax and or get Employer contributions?

Usually worth crystallising the pot so at least the 25% can grow free of LTA. 

MK62

What is it about the LTA that you are struggling with?
Are your pensions near the LTA level?
As pip895 replied, it'd be better if you fully described your situation.

Albermarle

To me this seems like I need something like a pensions tax accountant? Don't feel like I need an IFA, in as I am happy to choose my own investments, but could I pay an IFA a one-off fee to explain this properly to me? 

Not sure if there is such a thing as a pensions tax accountant . Probably an IFA is the best bet , if you want some detailed advice.

Plenty of threads on her though on this subject , although I think it is fair to say there is no black and white answer .

Many say if you have to pay some LTA tax , then it means you have won the game and don't worry about it too much.

dunstonh

 Don't feel like I need an IFA, in as I am happy to choose my own investments, but could I pay an IFA a one-off fee to explain this properly to me?

You would need a general practitioner IFA.  Not an FA or a wealth manager.

Marcon

15Manor said:

I have read (and re-read) varied information about the pensions LTA and crystallisation events but cannot understand it fully. I want to understand if it is worth starting to withdraw 'something' early (currently 55) before the pot increases any further above the LTA or not? I really need someone to explain the tax implications. To me this seems like I need something like a pensions tax accountant? Don't feel like I need an IFA, in as I am happy to choose my own investments, but could I pay an IFA a one-off fee to explain this properly to me? I just need someone to explain it in plain(er) English. Can anyone point me in the right direction?

If you're looking for information rather than advice, then try https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/book-a-free-pension-wise-appointment

As you will note, their website says:

During a Pension Wise appointment, a specialist will talk you through your options for taking your pension money.

Your appointment will last around 45 to 60 minutes.

The specialist will:

• explain your pension options
• explain how each option is taxed
• tell you what your next steps are.

They can't tell you whether something is a good or bad idea, but if you have a firm grasp of the facts, you may well be able to work out for yourself what you wish to do.

MallyGirl

I got some really useful info and examples a few weeks back in here:
https://forums.moneysavingexpert.com/discussion/6294316/lta-basics

15Manor

Thank you for your responses. I was really asking at this stage where I could get more information and Pension Wise definitely seems like a good first stop. I may well be back after that for more specific help, so thank you again in anticipation. Also as Albermarle says I should probably understand that " if you have to pay some LTA tax , then it means you have won the game and don't worry about it too much"

EdSwippet

Albermarle said:
Many say if you have to pay some LTA tax , then it means you have won the game and don't worry about it too much.

I don't know about "many", but you have certainly said it pretty regularly. ;-)

To me, this seems too fatalistic. Below age 55 options are certainly limited, but once over age 55, there are ways to reorganise your money to mitigate or even entirely avoid paying the LTA penalty, yet without changing your overall risk profile or investment returns.

It is true that they are not cost-free options; they save tax, but do not entirely avoid it. Using them usually means you bring forwards a tax bill, and so pay more in non-LTA tax than otherwise. But when this extra non-LTA tax you end up paying now is significantly lower than you would pay later on with an LTA penalty, there is a good case for action rather than just a shrug of resignation.

Scrudgy

The thoughts around the LTA that occupy me these days as a 55 year old are:-

If you have exceeded the LTA, then

• Stop paying into your pension unless you have a very generous employer pension contribution, example, my friend puts in 8% which another 16% is added by his employer for a 24% total contribution. This costs him no tax going in, so is well worth paying the LTA charge on the way back out.
• If you earn over £100k then it’s is worth at least still paying enough into your pension to avoid losing your personal allowance (the effective 60% tax bit) same goes for annual bonuses that exceed the threshold.
• My situation is that I recently exceeded the lifetime allowance, but I still pay in 6%, but my employer who matches the 6% allows me to take the companies 6% as cash as part of my taxed take home pay. I am currently doing this. It effectively means the 6% I pay into the pension is completely repaid to me in my salary by the firm, so a no brainier to put it into the pot that has already exceeded the LTA.
• I have completely stopped paying additional sums into my company scheme such as AVC’s.
• I am happy enough exceeding the LTA as you never know if a market fall is round the corner, so if you stay above the LTA, be happy you are, and if you lose a good chunk of your pot, hopefully it won’t be enough to damage your retirement plans too much.
• My next step is to leave my company scheme and transfer my entire pot to a SIPP, where I will crystallise the whole pot up to the LTA and transfer the tax free lump sum to ISA’s for me and my wife, do some premium bonds and maybe some fixed interest savings or a general investment account.
• This gives some room for more growth, and if the markets allow it to approach the LTA again, so be it, be happy that you have addressed the issue as best you can. However with the LTA frozen for 5 years, it might become more painful if the inflation runs high for a long period.
• I can then re-enrol in the company scheme to put in the 6% and then continue to take the firms 6% as part of my take home salary until I pull the trigger and retire.
• With the AVC money I am no longer stuffing into the pension (gone from £40k to £6k). I now take it as salary and pay the 41% tax (Scotland) on it and place it in ISA and cash savings.

I think this strategy is right for me, but wrong for my friend who gets the 24% pension contribution for only 8% tax free cost. Assuming of course he also crystallises his pot at the appropriate time. Although my pot is at the LTA, my cash savings and ISA’s need work, although the PCLS will take care of that once I crystallise.

Please feel free to add comments to my thoughts, it all seems to makes sense to me, but I maybe I have missed something fundamental that I need to change my thoughts.

Albermarle

My next step is to leave my company scheme and transfer my entire pot to a SIPP, where I will crystallise the whole pot up to the LTA and transfer the tax free lump sum to ISA’s for me and my wife

Scrudgy - All  your points are valid and well explained , but just to highlight the fact that taking the tax free cash out of the pension, potentially exposes it to IHT at a later date depending on your other circumstances.