Trying to understand pension LTA?

Albermarle

RogerPensionGuy said:

Thanks to posters but, I am still confused.

Example.

At age 55 my DC pension is 1.073M and I pull out the full 25% tax-free, so I have now used 100% of my LTA and about 805K sits in my SIPP and lets say it grows at 7% PA.

My thinking is if I draw out income over the years and the income reaches 805K as a cumulative total, I will start paying a 25% LTA charge at every withdrawal, is my thinking correct?

My thinking is I start drawing out income over the years and lets say I have taken out 605K at age 75, a BCE occurs and any funds above 200K in the SIPP gets a 25% LTA charge at this point and is taken out and then no more LTA charges every apply, is my thinking correct?

I currently think both my examples above are correct but, am interested to get views, so thanks again in advance.

Cheers Roger.

As mentioned in a previous post ( which matches what Qrizb said )

The test at 75 only looks at how big the remaining crystallised pot is, compared to what it was when it was crystallised . It does not matter how much it has grown , as long as this growth has been taken as income.

zagfles

RogerPensionGuy said:

Thanks to posters but, I am still confused.

Example.

At age 55 my DC pension is 1.073M and I pull out the full 25% tax-free, so I have now used 100% of my LTA and about 805K sits in my SIPP and lets say it grows at 7% PA.

My thinking is if I draw out income over the years and the income reaches 805K as a cumulative total, I will start paying a 25% LTA charge at every withdrawal, is my thinking correct?

My thinking is I start drawing out income over the years and lets say I have taken out 605K at age 75, a BCE occurs and any funds above 200K in the SIPP gets a 25% LTA charge at this point and is taken out and then no more LTA charges every apply, is my thinking correct?

I currently think both my examples above are correct but, am interested to get views, so thanks again in advance.

Cheers Roger.

No you are totally wrong. Nothing to do with cumulative income. It's far more simple than that.

You have £805k in the crystallised SIPP when you crystallised. If the value is more than £805k at age 75, then there's an LTA charge on the difference. So if it's £905k at age 75, there's an LTA charge on £100k, costing £25k.

So basically, if you withdraw all the growth, there's no further LTA charge.

RogerPensionGuy

Just a bit of information that maybe helpful to some.

The NI increase of 1 25% coming as of April2022 will be actually inside the NI rate, so as I understand it, this makes pension contributions even better fiscal year 2022/2023.

Unfortunately this 1.25% becomes a bolt on charge as of April2023, so this will drop that gain for the previous year.

Maybe someone could confirm if I'm correct please?

I know 1.25% isn't a hill of beans but, every little counts.

jamesd

I think you're right about the change but since salary sacrifice reduces contracted pay it may continue to save the extra cost after 2023.

zagfles

RogerPensionGuy said:

Just a bit of information that maybe helpful to some.

The NI increase of 1 25% coming as of April2022 will be actually inside the NI rate, so as I understand it, this makes pension contributions even better fiscal year 2022/2023.

Unfortunately this 1.25% becomes a bolt on charge as of April2023, so this will drop that gain for the previous year.

Maybe someone could confirm if I'm correct please?

I know 1.25% isn't a hill of beans but, every little counts.

Only salary sacrifice contributions save NI, and it'll be the same when the new levy comes in as it's charged on the same income as NI. Normal "net pay" employee contributions (like most public sector) or RAS contributions (eg to a SIPP) get no NI relief and so won't get any relief from the new levy.

tetrarch

I also saw a concertina ladder at the Ideal Hovel Exhibition

However, I looked online and found the price lower than the "special reduced show price" and bought it online later the same day

https://www.laddersandscaffoldtowers.co.uk/acatalog/Concertina-Loft-Ladders.html

I liked it a lot. It takes up a tiny amount of space in the loft and at 6' I was just tall enough to be able to manoeuvre the loft hatch out of the way and lower it down from the landing without needing any kind of pole

Regards

Tet 

Albermarle

tetrarch said:

I also saw a concertina ladder at the Ideal Hovel Exhibition

However, I looked online and found the price lower than the "special reduced show price" and bought it online later the same day

https://www.laddersandscaffoldtowers.co.uk/acatalog/Concertina-Loft-Ladders.html

I liked it a lot. It takes up a tiny amount of space in the loft and at 6' I was just tall enough to be able to manoeuvre the loft hatch out of the way and lower it down from the landing without needing any kind of pole

Regards

Tet 

I think you have posted this in the wrong forum 

NedS

zagfles said:

I doubt they'll cut the LTA in nominal terms, the current freeze is cutting it in real terms with CPI inflation at 5.1% and RPI at 7.1%

The enormity of this is just starting to sink in. The LTA was once a distant dream that was never going to bother me in a million years, but factor in 5-10 years of high inflation and a freeze on the LTA, and I'm nowhere near as safe as I once thought I was. I'm guessing it is going to catch a lot of middle earning folk unawares.

Albermarle

NedS said:

zagfles said:

I doubt they'll cut the LTA in nominal terms, the current freeze is cutting it in real terms with CPI inflation at 5.1% and RPI at 7.1%

The enormity of this is just starting to sink in. The LTA was once a distant dream that was never going to bother me in a million years, but factor in 5-10 years of high inflation and a freeze on the LTA, and I'm nowhere near as safe as I once thought I was. I'm guessing it is going to catch a lot of middle earning folk unawares.

You are probably right but my guess is that inflation will not persist at these high rates but who knows.

RogerPensionGuy

I still see the LTA as a massive cash collector for the HMRC and is not getting too much main stream press, I view how the LTA has jumped about these 16 years or so and the future looks unsure to me.