How many people actually get to the LTA?

Flugelhorn

Kim1965 said:

Just like to say, im planning to do what most of folk on this forum will do. Build up a decent dc fund, and pass it onto my kids. The fact that i could do this and not be slapped by some tax bill amazes me. 

I have a DC fund but it will get clobbered by tax as I hit the LTA  on DB pension- if the LTA had existed when I started the DC fund I wouldn't have bothered with it 

DT2001

Flugelhorn said:

Kim1965 said:

Just like to say, im planning to do what most of folk on this forum will do. Build up a decent dc fund, and pass it onto my kids. The fact that i could do this and not be slapped by some tax bill amazes me. 

I have a DC fund but it will get clobbered by tax as I hit the LTA  on DB pension- if the LTA had existed when I started the DC fund I wouldn't have bothered with it 

If AndrewB22’s workings are correct and you were paying HRT on the way in you are no worse off than having received the net amount and then invested that in say an ISA? Or would you have used another type of investment with a different tax relief?

We can only make decisions with the facts we know now rather than trying to second guess politicians. We have ended up with similar amounts in SIPPs and ISAs not through design but circumstance. With potentially only a few years before drawing on our investments I’ll probably continue to keep this balance as I’m sure rules will change again and hopefully this will mitigate any adverse alterations.

AndrewB22

The tax rules on pensions are complicated. It seems to me that the Annual Allowance has the effect of neutralising the tax relief on contributions to a pension above the limit in the year - usually £40k - and that the LTA does the same on the lifetime limit of a little more than £1m. If you get hit by both, if I understand it correctly you are worse off from a tax point of view than if you didn’t contribute.  However some DB schemes are so valuable that the increased accrual could mean that it’s better to pay the taxes on a larger pension; that gets very complicated, especially if the pension is non contributory and the alternative is just to decline getting it. 

But for DC pensions my understanding is that it is always a bad idea to exceed both the AA and the LTA. If you exceed just the LTA, and assuming you can ensure you remain a basic rate taxpayer in retirement, I think it’s neutral compared with saving inside an ISA, and better than saving outside an ISA (eg if your ISA limit is used up).

I think the points made about uncertainty and unfairness in this thread are very well made. The counter argument is that the old rules were abused by very wealthy people piling vast amounts of income into pensions and recycling them into tax free or lower taxed income in retirement, to the detriment of non-millionaires. So we could place the blame on the government or on the clever tax planners who - arguably- abused the system, or a bit of both.  In my experience the complexity of the tax rules is often caused by anti-avoidance provisions. 

Pensions are a tax break and the vast majority of the benefit accrues to the better off. It’s a personal thing and a political view but I find it hard to resent the LTA because it feels to me that it’s a nice problem to have. For disclosure I am heavily affected by the LTA personally, facing potentially a very large tax bill at age 75.  

Flugelhorn

DT2001 said:

Flugelhorn said:

Kim1965 said:

Just like to say, im planning to do what most of folk on this forum will do. Build up a decent dc fund, and pass it onto my kids. The fact that i could do this and not be slapped by some tax bill amazes me. 

I have a DC fund but it will get clobbered by tax as I hit the LTA  on DB pension- if the LTA had existed when I started the DC fund I wouldn't have bothered with it 

If AndrewB22’s workings are correct and you were paying HRT on the way in you are no worse off than having received the net amount and then invested that in say an ISA? Or would you have used another type of investment with a different tax relief?

We can only make decisions with the facts we know now rather than trying to second guess politicians. We have ended up with similar amounts in SIPPs and ISAs not through design but circumstance. With potentially only a few years before drawing on our investments I’ll probably continue to keep this balance as I’m sure rules will change again and hopefully this will mitigate any adverse alterations.

I might have used an ISA or maybe just spent the cash - as it is there is 100K sitting there and it would be 55% to take it as a lump sum or 25% then 40% to take it as income 

jim8888

Of the 2% or so who will be affected by the LTA, like me, I wonder how many of them, like me, cannot understand how the damn thing works?

JoeCrystal

jim8888 said:

Of the 2% or so who will be affected by the LTA, like me, I wonder how many of them, like me, cannot understand how the damn thing works?

Well if you are lucky enough to be in that exclusive group, perhaps you should educate yourself on how it works then? 

Flugelhorn

jim8888 said:

Of the 2% or so who will be affected by the LTA, like me, I wonder how many of them, like me, cannot understand how the damn thing works?

loads! most of my colleagues haven't a clue .... and don't get them on the AA they starting trembling

Flugelhorn

JoeCrystal said:

jim8888 said:

Of the 2% or so who will be affected by the LTA, like me, I wonder how many of them, like me, cannot understand how the damn thing works?

Well if you are lucky enough to be in that exclusive group, perhaps you should educate yourself on how it works then? 

some are trying to get educated but without accurate  predictions (mine was 2 years out of date when I took mine so I had to guess  - hit 99.7% LTA, which went up to 101% when they redid the sums) and also the AA it is not so easy when there a few people who genuinely understand the schemes - some doing Hokey - others just have head in sand and huge tax bills

DT2001

Flugelhorn said:

JoeCrystal said:

jim8888 said:

Of the 2% or so who will be affected by the LTA, like me, I wonder how many of them, like me, cannot understand how the damn thing works?

Well if you are lucky enough to be in that exclusive group, perhaps you should educate yourself on how it works then? 

some are trying to get educated but without accurate  predictions (mine was 2 years out of date when I took mine so I had to guess  - hit 99.7% LTA, which went up to 101% when they redid the sums) and also the AA it is not so easy when there a few people who genuinely understand the schemes - some doing Hokey - others just have head in sand and huge tax bills

The whole tax system is too complex and often tweaks to stop one thing have an unforeseen consequence. My OH’s accountant always checks his information before coming back to us with answers as he says “pension rules change and most of my clients fall within the normal bounds so I do not need to know the ‘detail’ just that I need to look when it is out of the ordinary”. This applies to LTA if only 2% exceed it?

I’ve used carry forward once (one off bonus on sale of a business) however realised sometimes you don’t know which questions to ask - can you salary sacrifice a bonus (yes), even if that is your only income (yes), and as a director. What were the other unforeseen consequences - CB was still paid as ‘income’ below (£50k), how daft and our eldest would have been entitled to higher student loan if he’d gone to Uni.

JoeCrystal

Flugelhorn said:

some are trying to get educated but without accurate  predictions (mine was 2 years out of date when I took mine so I had to guess  - hit 99.7% LTA, which went up to 101% when they redid the sums) and also the AA it is not so easy when there a few people who genuinely understand the schemes - some doing Hokey - others just have head in sand and huge tax bills

Yikes! Could do with an overhaul at some point I think? Especially when the DC pension schemes are more flexible than ever!