Lifetime allowance - an expensive mistake?

dw3305

Thanks for the responses, though obviously they are most unwelcome.  Just so I have it clear.

Two people retire and take DB pensions of £30K, person X just before A day, person Y just after.  Both start paying into another pension.  RPI increases mean that both are receiving pensions of £50K in 2016, £60K now.  Neither has taken any other action until now, when they decide to start receiving their second pension.  X's first pension is valued at 25x£60K, or £1.5M, well in excess of his lifetime allowance.  It would have been valued at £1.25M in 2016, so IP2016 is no help.  Y's virtually identical pension is valued at 25x£30K, or £750K, so he is free and clear.  And person Z, otherwise identical to person X, took £1 out of his second pension in 2010 and is also free and clear.

I'm looking around for someone to blame for this, but as the only people who know about both pensions are me and HMRC I don't see that going very far.  Would anyone know enough about
https://www.ajbell.co.uk/news/hmrc-loses-key-lifetime-allowance-pensions-court-case
to say if it might be of any use?

NedS

dw3305 said:

I'm looking around for someone to blame for this, but as the only people who know about both pensions are me and HMRC I don't see that going very far.  Would anyone know enough about
https://www.ajbell.co.uk/news/hmrc-loses-key-lifetime-allowance-pensions-court-case
to say if it might be of any use?

Unfortunately you are responsible for your own tax affairs. If you are looking to blame someone, I guess that would be Chancellor at the time, Gordon Brown, and the Labour Government.

Flugelhorn

all very frustrating and clearly the various scenarios hadn't been thought through. I have a DC which I was encouraged to take out "to top up potential shortfall of years in my DB pension", now the whole 100K  thing would be taxed ++ - though unlike OP I didn't put much in and would still get more out that I put in. - wouldn't have bothered if I had known about LTAs when I started it 

eskbanker

dw3305 said:

I took early retirement and an immediate DB pension 20 years ago.  I was advised that I could take out a new pension contributing £3600 a year and did so.

Was that actual regulated advice, and, if so, was it just a one-off or has there been any subsequent activity with financial advisers?  It probably was good advice in 2002 but obviously rendered less so by subsequent events unforeseeable at the time....

dw3305

eskbanker said:

dw3305 said:

I took early retirement and an immediate DB pension 20 years ago.  I was advised that I could take out a new pension contributing £3600 a year and did so.

Was that actual regulated advice, and, if so, was it just a one-off or has there been any subsequent activity with financial advisers?  It probably was good advice in 2002 but obviously rendered less so by subsequent events unforeseeable at the time....

As I recall it was from Legal & General, who I took the pension out with.  I don't know whether this counts as regulated advice, but even if it does the only contact since is that they activate my direct debit every month and send me a statement every year.  I don't think they would have any record of my other pension.  Why should they in 2002?

Looks like it's down to me.  Unfortunately anything I've read about making elections has been about protecting funds.  I've never picked up any necessity to protect pensions already in payment

Albermarle

dw3305 said:

Thanks for the responses, though obviously they are most unwelcome.  Just so I have it clear.

Two people retire and take DB pensions of £30K, person X just before A day, person Y just after.  Both start paying into another pension.  RPI increases mean that both are receiving pensions of £50K in 2016, £60K now.  Neither has taken any other action until now, when they decide to start receiving their second pension.  X's first pension is valued at 25x£60K, or £1.5M, well in excess of his lifetime allowance.  It would have been valued at £1.25M in 2016, so IP2016 is no help.  Y's virtually identical pension is valued at 25x£30K, or £750K, so he is free and clear.  And person Z, otherwise identical to person X, took £1 out of his second pension in 2010 and is also free and clear.

I'm looking around for someone to blame for this, but as the only people who know about both pensions are me and HMRC I don't see that going very far.  Would anyone know enough about
https://www.ajbell.co.uk/news/hmrc-loses-key-lifetime-allowance-pensions-court-case
to say if it might be of any use?

Just to be accurate , The pension of X valued at £1.5M would attract no LTA charge despite being over the limit . The problem is if X has a substantial second pension.....
Also the pension of Y  would only be 20X £30K but would be plus tax free lump sum ( which was not taken into account pre A day ) so would be effectively 25X still anyway .

I suspect the issue is one of unintended consequences arising from changes to the pension legislation, as opposed to something deliberate .

dunstonh

As I recall it was from Legal & General, who I took the pension out with.  I don't know whether this counts as regulated advice, but even if it does the only contact since is that they activate my direct debit every month and send me a statement every year.  I don't think they would have any record of my other pension.  Why should they in 2002?

Providers do not provide advice unless you use an agent of the insurer under their advice service.  L&G did used to have a salesforce.   However, they have done nothing wrong even if they did give advice as it was one-off transactional advice based on the rules at the time.    There is no way they would know in 2002 what was going to be introduced in 2006.