LTA Thoughts Please

Albermarle

 However, the point I think this makes, which I think is interesting, is that I have seen the LTA compared to the AA as two limits that essentially aim to achieve the same thing - to limit how much wealthy folks can ultimately deposit into pension schemes and obtain tax relief on. The point this comment makes is that the LTA is effectively set at a level substantially below the AA when considered over a longer time frame and with not unreasonable levels of investment returns

It is a good point, I had not considered the imbalance between the two was so high.

RogerPensionGuy

https://www.express.co.uk/finance/personalfinance/1727404/Pension-lifetime-allowance-Chancellor-Jeremy-Hunt-55-horror-tax-savers-pensions
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Putting this story with the fact that the LTA freeze wasn't extended from April 2026 till April 2028 like most else was and he wants some more experienced people back working, maybe he will play with the LTA anytime soon, 15th of March is the budget, fingers crossed. 

RogerPensionGuy

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/lifetime-allowance
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The above is a nice read showing info about the LTA, introduced in 2006 and just look how they have played with it, makes it impossible to plan well for.

BennyBrownBoy

RogerPensionGuy said:

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/lifetime-allowance
.

The above is a nice read showing info about the LTA, introduced in 2006 and just look how they have played with it, makes it impossible to plan well for.

Thanks Roger - helpful article but still seems hugely complex. 

Don’t know if you can help…

Looks like I will need to pay some LTA charge.  I’d like to get maximum tax free cash out of DC scheme - figures are in original post. My thinking is that I need to crystallise the DC scheme first which will provide about £85K tax free. Then I will rake DB pensions which will take me over the LTA. Charge will need to be paid either by DB scheme or from tax free cash released from DC.

if I do it the other way around - take DB pensions first, then I would not be able to get £85K tax free - it would be less than this because the DB scheme would have used up a significant amount of the LTA - therefore limiting the available tax free cash from DC.

My question is - how do I actually complete these steps in the right order? Do they have to be done in two different tax years for example. Or can they be done in the same tax year?

How do I actually do it? Do I have to talk to HMRC for example? Can I do it myself or would I need an IFA to do it on my behalf?

Many thanks for your help.

doodling

Hi,

BennyBrownBoy said:

RogerPensionGuy said:

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/lifetime-allowance
.

The above is a nice read showing info about the LTA, introduced in 2006 and just look how they have played with it, makes it impossible to plan well for.

Thanks Roger - helpful article but still seems hugely complex. 

Don’t know if you can help…

Looks like I will need to pay some LTA charge.  I’d like to get maximum tax free cash out of DC scheme - figures are in original post. My thinking is that I need to crystallise the DC scheme first which will provide about £85K tax free. Then I will rake DB pensions which will take me over the LTA. Charge will need to be paid either by DB scheme or from tax free cash released from DC.

if I do it the other way around - take DB pensions first, then I would not be able to get £85K tax free - it would be less than this because the DB scheme would have used up a significant amount of the LTA - therefore limiting the available tax free cash from DC.

My question is - how do I actually complete these steps in the right order? Do they have to be done in two different tax years for example. Or can they be done in the same tax year?

How do I actually do it? Do I have to talk to HMRC for example? Can I do it myself or would I need an IFA to do it on my behalf?

Many thanks for your help.

First, I would make sure that I am certain that taking the DC TFLS is the right thing to do.  Guaranteed payments for life are very valuable things (albeit depending on things like inflation proofing and suchlike) so I'd want to explore the impact of different ways of achieving the goal of getting a lump of cash (even if it comes taxable from the DC).

In practical terms, it all comes down to the order in which you do things.  Every time you start a DB, or crystallise part of a DC, you will be told what percentage of the LTA you have used, and usually you are expected to tell the next pension company the total percentage of the LTA you have used so far.  If the pension / DC payment you seek fits below 100% of the LTA then it goes through as normal, if it takes you over then they'll start taking about the extra tax.

Albermarle

First, I would make sure that I am certain that taking the DC TFLS is the right thing to do.  Guaranteed payments for life are very valuable things (albeit depending on things like inflation proofing and suchlike)

I agree with this . In other threads on LTA it is usually suggested not to take the charge on the DB scheme if possible, as financially it could be a bigger hit. I can not remember the detail as it probably depends on the DB scheme rules, and of course comparing the loss of X£ of guaranteed income, to a cash sum is a grey area anyway.

Every time you start a DB, or crystallise part of a DC, you will be told what percentage of the LTA you have used

Regarding timings, it should be possible to crystallise a DC scheme within a few weeks of first contacting the provider. Maybe only two weeks. However some DB administrators are very inefficient and work at a snails pace. Normally AIUI it can take a couple of months, but often can be lengthy delays/mistakes/poor communication etc . 

BennyBrownBoy

Albermarle said:

First, I would make sure that I am certain that taking the DC TFLS is the right thing to do.  Guaranteed payments for life are very valuable things (albeit depending on things like inflation proofing and suchlike)

I agree with this . In other threads on LTA it is usually suggested not to take the charge on the DB scheme if possible, as financially it could be a bigger hit. I can not remember the detail as it probably depends on the DB scheme rules, and of course comparing the loss of X£ of guaranteed income, to a cash sum is a grey area anyway.

Every time you start a DB, or crystallise part of a DC, you will be told what percentage of the LTA you have used

Regarding timings, it should be possible to crystallise a DC scheme within a few weeks of first contacting the provider. Maybe only two weeks. However some DB administrators are very inefficient and work at a snails pace. Normally AIUI it can take a couple of months, but often can be lengthy delays/mistakes/poor communication etc . 

Thanks for the comments. I guess this is the issue - I simply don’t know how to fully understand whether taking the max tax free cash from DC is the right thing to do - probably why I should take advice. It just seems to be the intuitive thing to do, rather than take less tax free cash by taking the DB schemes first. 

Incidentally, although my DB scheme may cover the LTA charge through commutation - in reality I would not do this. I would pay the charge from the tax free DC cash. 

If I take DB schemes first and the UFPLS amounts up to the LTA limit it feels like I am simply delaying an LTA charge until I either want to take cash from the DC above the LTA - say for a large purchase - or until I am 75, where DC growth presumably may also be a factor.

Hoping that the March budget may significantly unfreeze and lift the LTA. Here’s hoping!

RogerPensionGuy

BennyBrownBoy said:

Albermarle said:

First, I would make sure that I am certain that taking the DC TFLS is the right thing to do.  Guaranteed payments for life are very valuable things (albeit depending on things like inflation proofing and suchlike)

I agree with this . In other threads on LTA it is usually suggested not to take the charge on the DB scheme if possible, as financially it could be a bigger hit. I can not remember the detail as it probably depends on the DB scheme rules, and of course comparing the loss of X£ of guaranteed income, to a cash sum is a grey area anyway.

Every time you start a DB, or crystallise part of a DC, you will be told what percentage of the LTA you have used

Regarding timings, it should be possible to crystallise a DC scheme within a few weeks of first contacting the provider. Maybe only two weeks. However some DB administrators are very inefficient and work at a snails pace. Normally AIUI it can take a couple of months, but often can be lengthy delays/mistakes/poor communication etc . 

Thanks for the comments. I guess this is the issue - I simply don’t know how to fully understand whether taking the max tax free cash from DC is the right thing to do - probably why I should take advice. It just seems to be the intuitive thing to do, rather than take less tax free cash by taking the DB schemes first. 

Incidentally, although my DB scheme may cover the LTA charge through commutation - in reality I would not do this. I would pay the charge from the tax free DC cash. 

If I take DB schemes first and the UFPLS amounts up to the LTA limit it feels like I am simply delaying an LTA charge until I either want to take cash from the DC above the LTA - say for a large purchase - or until I am 75, where DC growth presumably may also be a factor.

Hoping that the March budget may significantly unfreeze and lift the LTA. Here’s hoping!

The short term tampering with pensions and espically the LTA for some like me means we just cannot plan easily. 

Just imagine activating a pension or 2 now consuming maybe 90, 95 or 100% LTA or even going over the LTA and paying a the LTA charge and then he essentially winds up the LTA or removes it but, a person completed it all end if February 2023.

coyrls

RogerPensionGuy said:

BennyBrownBoy said:

Albermarle said:

First, I would make sure that I am certain that taking the DC TFLS is the right thing to do.  Guaranteed payments for life are very valuable things (albeit depending on things like inflation proofing and suchlike)

I agree with this . In other threads on LTA it is usually suggested not to take the charge on the DB scheme if possible, as financially it could be a bigger hit. I can not remember the detail as it probably depends on the DB scheme rules, and of course comparing the loss of X£ of guaranteed income, to a cash sum is a grey area anyway.

Every time you start a DB, or crystallise part of a DC, you will be told what percentage of the LTA you have used

Regarding timings, it should be possible to crystallise a DC scheme within a few weeks of first contacting the provider. Maybe only two weeks. However some DB administrators are very inefficient and work at a snails pace. Normally AIUI it can take a couple of months, but often can be lengthy delays/mistakes/poor communication etc . 

Thanks for the comments. I guess this is the issue - I simply don’t know how to fully understand whether taking the max tax free cash from DC is the right thing to do - probably why I should take advice. It just seems to be the intuitive thing to do, rather than take less tax free cash by taking the DB schemes first. 

Incidentally, although my DB scheme may cover the LTA charge through commutation - in reality I would not do this. I would pay the charge from the tax free DC cash. 

If I take DB schemes first and the UFPLS amounts up to the LTA limit it feels like I am simply delaying an LTA charge until I either want to take cash from the DC above the LTA - say for a large purchase - or until I am 75, where DC growth presumably may also be a factor.

Hoping that the March budget may significantly unfreeze and lift the LTA. Here’s hoping!

The short term tampering with pensions and espically the LTA for some like me means we just cannot plan easily. 

Just imagine activating a pension or 2 now consuming maybe 90, 95 or 100% LTA or even going over the LTA and paying a the LTA charge and then he essentially winds up the LTA or removes it but, a person completed it all end if February 2023.

The need for LTA management has meant that I have taken Fixed Protection 2016 and, as a result, stopped pension contributions and crystallised 100% of my pension.  Without LTA considerations, I would have continued pension contributions (all be it at the "no income" level) and would have phased my pension crystallisation.

RogerPensionGuy

https://www.gbnews.uk/money/at-last-hated-55-per-cent-horror-tax-under-review-chancellor-finally-set-to-increase-unfair-pensions-lifetime-allowance/432479
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https://www.dailymail.co.uk/news/article-11685685/Pension-reforms-50s-work-considered-Jeremy-Hunt-said-speech-economy.html
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Nice to see the LTA and its silly treatment getting plenty of press coverage, hopefully it will be made much better in its workings and allow people to understand pensions in general a bit better.