How many people actually get to the LTA?

NedS

Albermarle said:

Silvertabby said:

It's much harder to reach LTA with a DB scheme due to the way they are valued:  20 X annual pension plus 1 X lump sum.

A DB pension of £40K plus a tax free lump sum of £250K just sneaks in - but the amount of DC pot needed to match this as an annuity would likely be well over £2M.

Probably comparing directly with a current  annuity is not entirely correct . The annuity rates are improving and as already said the DC pot also has some advantages as well as disadvantages.

Using the latest Annuity best buy rates of £3372 for a joint life 50%, 3% escalation, no guarantee at age 65 as a reasonable approximation of a DB pension, £40k would require a pot of £1.186M. A more normal lump sum is 3 x annual pension, so £120k, giving a total value of around £1.3M.

I wouldn't take annuity rates to rise much for a factor of x20 to seem reasonable.

AndrewB22

RSTime said:

Is there any data on how many people get to the LTA? I appreciate that number will increase as long as it is frozen.

If I read the table 8, posted by DazedandConfused, correctly, about 8,000 people paid an LTA tax charge in the most recent tax year. I can’t find data for how many people take a pension each year, but we do know that there are about 750,000 people who were born each year in the mid 1960s who are still alive and who are therefore reaching retirement age around now. So assuming people retire evenly over time, it looks like a little over 1% of retirees have a pension pot that exceeds the LTA. 

I think the number might be slightly higher because the LTA charge is payable (I think) when a non-DB pension pot is crystallised or at age 75. If someone has a large non-DB pension, they can crystallise the amount up to the LTA and live on that, avoiding an LTA charge until 75 or death. So there could be a bunch of people in that situation. But how many would be a guess. 

EdSwippet

Dazed_and_C0nfused said:

This is probably as good as it gets.

In particular table 8.

https://www.gov.uk/government/statistics/personal-and-stakeholder-pensions-statistics

This ONS FOI reply might also give a clue, although the numbers it uses are some years old now (and it presumably also excludes defined benefits pension holders):
https://www.ons.gov.uk/aboutus/transparencyandgovernance/freedomofinformationfoi/pensionwealthintheuk

Table 2 shows that for the period April 2016 to March 2018, 1,032,000 individuals (2%) in Great Britain were estimated to have private pension wealth worth £1,000,000 or more.

Kim1965

If only 2 %of people have a pot equal to lta, does this make the freeze on lta seem more reasonable?? 

Albermarle

This ONS FOI reply might also give a clue, although the numbers it uses are some years old now (and it presumably also excludes defined benefits pension holders):
https://www.ons.gov.uk/aboutus/transparencyandgovernance/freedomofinformationfoi/pensionwealthintheuk

When I last looked at ONS data , it included private DB schemes but not public sector. As is known many well paid public sector employees ( doctors in particular ) were running into potential LTA problems and refusing to do extra hours because of it .

If only 2 %of people have a pot equal to lta, does this make the freeze on lta seem more reasonable?

The statistics are not 100% clear but I think it is clear there will be  potentially more people being affected as the years go by , even without the freeze. 

RSTime

Kim1965 said:

If only 2 %of people have a pot equal to lta, does this make the freeze on lta seem more reasonable?? 

This figure is likely to increase significantly given wage inflation and the fact that the LTA is frozen. What is perhaps concerning is the fact that a significant proportion of people will get to retirement age with very small pensions.

EdSwippet

Kim1965 said:

If only 2 %of people have a pot equal to lta, does this make the freeze on lta seem more reasonable?? 

I'm unsure what thinking lies behind this question, but it certainly seems clear from the LTA freeze for half a decade that the government would very much like this number to be considerably larger than 2%.

Albermarle

RSTime said:

Kim1965 said:

If only 2 %of people have a pot equal to lta, does this make the freeze on lta seem more reasonable?? 

This figure is likely to increase significantly given wage inflation and the fact that the LTA is frozen. What is perhaps concerning is the fact that a significant proportion of people will get to retirement age with very small pensions.

Or no pensions at all in the case of the majority of self employed people.

Kim1965

I have been self employed for 20 odd years, I know very few fellow self employed trades who have any pension.
 The few who have made any investment at all have tended to go down the btl route.
 Why do the self employed tend undrrfund their pensions? 

AndrewB22

Kim1965 said:

If only 2 %of people have a pot equal to lta, does this make the freeze on lta seem more reasonable?? 

As a matter of public policy, I would argue that yes, it is reasonable. Only the very well off are likely to exceed the LTA, the top few percent of people. Those people aren’t in need of further tax breaks. That is, however, basically a political opinion. 

The LTA tax charge only takes away the tax relief that was given when the pension contributions were made.  So if you paid into a pension and got tax relief at 40%, and then exceeded the LTA but in retirement paid only basic rate tax, the LTA charge of 25% would bring you back to where you started. (You would have 75% of the pension above LTA after the LTA charge, and 80% of that left after basic rate income tax, and 0.75*0.80=0.6, so 60% left after both taxes, clawing back the tax relief you received in the first place.)