Ooh, Time to Start Speculating About LTA Changes Again

Pat38493

cfw1994 said:

valueman1 said:

If I am about to hit the LTA and I am over 55, should I just go into drawdown at that point to protect my position?

That’s a debatable point.  I did, but it depends on your view of the future and what use you can make of the money you would be drawing down: inside the DC pot means it is outside of the estate, protected from IHT.   Were you aware of that?

How has the research gone into the family investment company to lock that money from your offspring for a decade or two?

By the way, a bit of a side question, but can you put your fund "into drawdown" without taking out the tax free cash or are you obliged to take it out order to "put the fund in drawdown".

MK62

You are not obliged to take any tax free cash, but you'd need a good reason not to tbh.....it's a one time deal though for whatever portion of your pension fund you put into drawdown, use it or lose it.
If you don't need or want all the tax free cash at once, then consider phased (partial) drawdown or UFPLS for making withdrawals. 

Albermarle

By the way, a bit of a side question, but can you put your fund "into drawdown" without taking out the tax free cash or are you obliged to take it out order to "put the fund in drawdown".
The normal route, is that you crystallise a certain amount and 25% of this is paid tax free. The rest is then part of a crystallised pot, that is potentially taxable on withdrawal. Some older pensions will only have the option of crystallising the whole pot at once. A more modern pension will let you crystallise in stages.
As MK62 says, in theory you could refuse the tax free cash, but that would not be very clever and would probably blow a fuse in the pension providers computers !

Pat38493

Albermarle said:

By the way, a bit of a side question, but can you put your fund "into drawdown" without taking out the tax free cash or are you obliged to take it out order to "put the fund in drawdown".
The normal route, is that you crystallise a certain amount and 25% of this is paid tax free. The rest is then part of a crystallised pot, that is potentially taxable on withdrawal. Some older pensions will only have the option of crystallising the whole pot at once. A more modern pension will let you crystallise in stages.
As MK62 says, in theory you could refuse the tax free cash, but that would not be very clever and would probably blow a fuse in the pension providers computers !

OK so the answer is yes and no!  Theoretically you could do this, but is would mean that you lose the tax benefit of the 25% and the entire amount would become potentially taxable, so in reality it's pretty hard to think of a reason why anyone would do that.

Albermarle

Pat38493 said:

Albermarle said:

By the way, a bit of a side question, but can you put your fund "into drawdown" without taking out the tax free cash or are you obliged to take it out order to "put the fund in drawdown".
The normal route, is that you crystallise a certain amount and 25% of this is paid tax free. The rest is then part of a crystallised pot, that is potentially taxable on withdrawal. Some older pensions will only have the option of crystallising the whole pot at once. A more modern pension will let you crystallise in stages.
As MK62 says, in theory you could refuse the tax free cash, but that would not be very clever and would probably blow a fuse in the pension providers computers !

OK so the answer is yes and no!  Theoretically you could do this, but is would mean that you lose the tax benefit of the 25% and the entire amount would become potentially taxable, so in reality it's pretty hard to think of a reason why anyone would do that.

Apparently there are  some scenarios where it may be a good idea, but unlikely to apply to the vast majority.

cfw1994

Pat38493 said:

Albermarle said:

By the way, a bit of a side question, but can you put your fund "into drawdown" without taking out the tax free cash or are you obliged to take it out order to "put the fund in drawdown".
The normal route, is that you crystallise a certain amount and 25% of this is paid tax free. The rest is then part of a crystallised pot, that is potentially taxable on withdrawal. Some older pensions will only have the option of crystallising the whole pot at once. A more modern pension will let you crystallise in stages.
As MK62 says, in theory you could refuse the tax free cash, but that would not be very clever and would probably blow a fuse in the pension providers computers !

OK so the answer is yes and no!  Theoretically you could do this, but is would mean that you lose the tax benefit of the 25% and the entire amount would become potentially taxable, so in reality it's pretty hard to think of a reason why anyone would do that.

That would be a question for your provider….technically they might to be able to allow it, but that TFLS would need to live somewhere, and I suspect most providers would not allow it to live in the ‘drawdown’ pot. 

Remember it has ‘left’ the pension from the perspective of now being part of your estate, so typically I think they would insist on you taking the cash: you could then reinvest however you want, but obviously with limits (eg up to £20k into an ISA, £50k to PBs).

RogerPensionGuy

Albermarle said:

By the way, a bit of a side question, but can you put your fund "into drawdown" without taking out the tax free cash or are you obliged to take it out order to "put the fund in drawdown".
The normal route, is that you crystallise a certain amount and 25% of this is paid tax free. The rest is then part of a crystallised pot, that is potentially taxable on withdrawal. Some older pensions will only have the option of crystallising the whole pot at once. A more modern pension will let you crystallise in stages.
As MK62 says, in theory you could refuse the tax free cash, but that would not be very clever and would probably blow a fuse in the pension providers computers !

Just for comment, I have friends who had planned their DC pensions well and as the they approached the LTA, most of them wolfed out the 25% in tax free cash, placed the cash in all the sensible places and either left the draw-down pot untouched to grow and/or avoid their AA going to 4K, a few of them just started to draw the personal income tax allowance amount of £12,570 currently and started to use/consume their 25% tax free as required.

Since the LTA was introduced, it has been pushed and pulled all over the place and makes it very hard for planning, I think it's most unacceptable, the present status of locked for 5 years and inflation over 10% just shows how bonkers it is.   

RogerPensionGuy

The link below is from June 2021 and an interesting read, I know people planning for an LTA reduction who are maxing out on pension contributions now and will probably stop pension contributions if indeed it decreases and use fixed protection. 

I also know younger people who have reduced pension contributions because of the treatment of the LTA and are just filling up ISAs or similar as they don't consider pensions to be what they once were. 

The current way governments are playing with peoples long term planning is probably making many more problems down the road, these long term vehicles need stability and any adjustments should made and announced 10/15 years in advance and no going back on plans with essentially no notice. 

https://forums.moneysavingexpert.com/discussion/6388703/ooh-time-to-start-speculating-about-lta-changes-again#latest

https://www.telegraph.co.uk/politics/2022/11/04/pensions-stealth-tax-raid-hit-millions-savers/

Albermarle

RogerPensionGuy said:

The link below is from June 2021 and an interesting read, I know people planning for an LTA reduction who are maxing out on pension contributions now and will probably stop pension contributions if indeed it decreases and use fixed protection. 

I also know younger people who have reduced pension contributions because of the treatment of the LTA and are just filling up ISAs or similar as they don't consider pensions to be what they once were. 

The current way governments are playing with peoples long term planning is probably making many more problems down the road, these long term vehicles need stability and any adjustments should made and announced 10/15 years in advance and no going back on plans with essentially no notice. 

https://forums.moneysavingexpert.com/discussion/6388703/ooh-time-to-start-speculating-about-lta-changes-again#latest

https://www.telegraph.co.uk/politics/2022/11/04/pensions-stealth-tax-raid-hit-millions-savers/

A lot of these LTA articles have a scaremongering tone. The ones in the Daily Express especially ' Sunak's 55% pension tax grab' 
If someone who did not really understand pensions quickly read these articles, they may well be under the impression that once you reached a Million you lost 55% of it !
Hopefully people are not being unnecessarily put off pension saving/free employer contributions/tax relief ( very generous for 40% taxpayers) due to receiving poor info. 

Malthusian

RogerPensionGuy said:

The current way governments are playing with peoples long term planning is probably making many more problems down the road, these long term vehicles need stability and any adjustments should made and announced 10/15 years in advance and no going back on plans with essentially no notice. 

This has been a perennial complaint about pensions, especially since A-Day, but by and large people still save into them.
How would you force the Government to only change pension rules 10-15 years in advance? If you passed a law saying the Government could only change pension rules with 10-15 years' notice, a future Government could simply abolish it, saying "circumstances have changed".
We don't have super-laws (like the US Constitution) that require a two-thirds majority to overturn in this country. 
The rules on not investing via pensions can change at any time as well - look at Osborne's dividend tax reforms. You can only plan based on the system in place at the time, and say "the State giveth and the State taketh away" if things change.
If there is a lesson in the way the pension system has been changed over the last couple of decades, it is "if the Government is offering a tax break then fill your boots while you can, rather than assuming it's a trap and you'll pay more tax thanks to retrospective tax changes". The people who have lost out from recent rule changes are mainly those who held off from putting money into pensions, and now can't do so thanks to the reductions in how much you can put in.