Exceeded LTA - Requirement to crystallise whole pot

sumigo

I have exceeded LTA (by about £60,000) and was looking to take the 25% PCLS when I reach 55 next week.
I am not planning to retire for another year so intention was to crystallize up to the LTA and reinvest PCLS outside SIPP and then after retirement start drawdown process (up to basic tax rate to hopefully mitigate against BCE at 75).
The remaining £50,00 I would leave uncrystallised deferring charge until 75

I have just spoken to my provider, Aviva, and was advised that I need to crystallize the full amount ie ~£1,133,000 when I take the PCLS, even though I will not be taking any drawdown.
Is this generally correct or some restriction with this particular policy?

EdSwippet

sumigo said:

Is this generally correct or some restriction with this particular policy?

It's not a general rule or restriction. I have part-crystallised a (non-Aviva) pension without issue.

Assuming the person you spoke to answered correctly -- and you might want to double-check this; front-line staff sometimes make mistakes in areas they don't commonly get asked about -- it sounds like it is specific either to Aviva or to this particular Aviva pension.

dunstonh

I have just spoken to my provider, Aviva, and was advised that I need to crystallize the full amount ie ~£1,133,000 when I take the PCLS, even though I will not be taking any drawdown.
Is this generally correct or some restriction with this particular policy?

Are you in a legacy plan or a modern plan?     

Your transaction is still drawdown as you are taking the 25% TFC but with zero income and you are phasing it needing a plan that supports part crystallisation.

Some of Aviva's legacy plans only support full crystallisation and cannot do phased.

Albermarle

You may have to transfer the pension to a more flexible one, either with Aviva or someone else.

In any case by deferring it for 20 years, it is likely you will pay a higher charge on the £50K than you would now. As probably it will grow more than inflation.
Although the legislation may have changed by then , for good or bad.

MallyGirl

if it is only by £60k then you could transfer just under £30k to HL and take that out as 3 small pots. The remaining £30k you are over by could be managed by crystallising during a dip (if you are with a provider that is quick on their feet).

sumigo

Thanks all. 
Lot of confusion speaking to the advisor. Was helpful but didnt seem to have much experience with LTA and how/when tax would be charged. I imagine there are relatively few people in this position so can understand, to a certain extent, their lack of familiarity but with LTA freeze this will no doubt affect more and more people in the future.
Have asked for further clarification and confirmation in writing so hopefully will get resolved. 
I didnt think I needed an IFA for this as my situation is fairly simple but there may be an argument for this considering the sums involved. 

dunstonh

Lot of confusion speaking to the advisor. Was helpful but didnt seem to have much experience with LTA and how/when tax would be charged

Was it an adviser?     Normally, you don't get to speak to an adviser unless you agree to use their in-house salesforce.   For general enquiries, they just use call centre staff and they wouldn't  really know things beyond what their screen tells them and their script allows.

gm0

Legacy plans don't necessarily support phased FAD or nibbling away with UFPLS optimally.  The assumption being you will transfer out if you need those options.  Drawdown retrofit of all options is not really in the interest of all members (of old occupational schemes) so it doesn't happen.  If you don't like the subset provided. Find a new one.

Often it's "we don't do that here" rather than "you can only do". 

I had a restricted drawdown option scheme which had some other desirable characteristics.  So I made partial transfers and crystallised a % of LTA each time leaving the residue in the original scheme.

Essentially you can get to any position you want in terms of % crystallised, income set to zero on it if desired (chunks of FAD) but it may take a couple of steps.

This takes the growth of 25% outside the miserable LTA nominal growth trap. Recyled to S&S ISA etc. 
The rest can be managed out by drawing income to nominal growth pre-75. 

Albermarle

Lot of confusion speaking to the advisor   call centre staff 

This is probably more accurate. An actual financial advisor ( the sort you pay for ) would be more au fait with LTA issues, hopefully anyway.

EdSwippet

Albermarle said:

In any case by deferring it for 20 years, it is likely you will pay a higher charge on the £50K than you would now. As probably it will grow more than inflation.

Not sure of the relevance of inflation here. If you're thinking the LTA will have grown by (at least) inflation ... well, yes, but the OP will have already used 100% of it. And 0% of any size of LTA is £0.

Scrudgy

With the high cost of living going to affect everyone, maybe it will be recognised that the freeze on the LTA might be too punitive for these new times. The optimist in me hopes that there will be some movement in this area. 

If there were to be increases in the LTA in the next several years, would the OP be better off leaving the pot alone at this time, and when retired taking income as UFPLS to only crystallise smaller chunks of the LTA, leaving as much of the LTA intact for longer?