LTA Thoughts Please

RogerPensionGuy

BennyBrownBoy said:

Hi All,

Appreciate, a "first world" nice problem to have perhaps, but am looking for thoughts on best way to approach forthcoming retirement in 18 months with regards to the LTA. I will likely need to take IFA advice but am looking to be best prepared to ask the right questions, be best informed etc.

I have 2 deferred DB pensions both with NRA 60 - payable June 2024. Most recent forecast (Jan 23) shows £40.4K pa combined. One has an AVC of £12.5K attached. Neither has an additional lump sum (except AVC) but will allow commutation to cash at 19:1. I don't wish to do this as have other savings (ISAs) and would prefer full pension options.

Also have a DC pot - currently valued at £265K. My reckoning suggests this puts me currently around £12.4K over the LTA.

If I continue to contribute at my current rate (sal sac) over 18 months I will add £60K to this, plus whatever growth in the funds - so maybe around £340K at age 60 (June 2024). Leaving aside further revaluation of my DB schemes before I get to 60, this would put me circa £87.4K above the LTA.

For background, my wife is retired and will draw her Teachers Pension also in 2024 at 60 and we are fortunate that the majority of our expenses/needs will be covered by our joint DB pensions. The DC pot is essentially a welcome "extra" that we would need to take small amounts of cash (approx £5Kpa) from until we are both at State Pension age (67). However, I would like to be able to draw from the DC pot in the most tax efficient way for larger purchases etc.

Accepting I probably won't be able to avoid a charge completely, I'd be really grateful for any thoughts on any steps I could be taking now/what to ask an IFA to minimise the additional tax charge. Also - is there a recommended order in which I should take my pensions? Should I reduce payments into my DC scheme (can drop from current 28% sal sac to 3% and still get employer max of 11%)? 

Thanks in advance for your thoughts/suggestions - this board has been incredibly informative over the years - I've learned loads, though find LTA issues especially complicated.

Thanks again.

The following link may be helpful, I like it and this fellow has some nice other outputs on youtube.


https://www.youtube.com/watch?v=gKy21Gx6VrU

Pat38493

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 . 

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. 

I am not sure if that's allowed and/or possible.  In fact, the question was asked on another thread a few weeks ago and I can't remember if it was ever definitively answered, but it seemed like nobody could say that you are definitely allowed to do that (i.e. pay the LTA charge on a DB pension activation in cash from another source).  Also, like everything else, even if you could do that, it might not be the most cost effective approach depending on the exact scenario and the amount of DB pension reduction that your scheme proposed to apply for the tax charge.

BennyBrownBoy

Thanks again all - really like the Meaningful Money channel on YouTube - have learned a lot from it.

Re. can you pay an LTA charge from "other" cash when the charge is activated by taking a DB scheme - what happens if the DB scheme simply does not have the facility to pay the charge via commutation?

Scrudgy

Pat38493 said:

BennyBrownBoy 

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. 

I am not sure if that's allowed and/or possible.  In fact, the question was asked on another thread a few weeks ago and I can't remember if it was ever definitively answered, but it seemed like nobody could say that you are definitely allowed to do that (i.e. pay the LTA charge on a DB pension activation in cash from another source).  Also, like everything else, even if you could do that, it might not be the most cost effective approach depending on the exact scenario and the amount of DB pension reduction that your scheme proposed to apply for the tax charge.

In one of the videos on YouTube that James Shack does this exact example came up. It was definitely better to pay the LTA charge from the DC pot, and not the DB. It appeared to be something you could instruct your provider to do on your behalf.

The example given was that the retiree was looking to maintain as much annual guaranteed income as possible, and commutation of the DB element was the wrong way to do it. As the DC pot had enough money in it it was fully crystallised and used to pay the LTA fee with the remainder used to buy a fixed annuity to add to the DB income.

Albermarle

It was definitely better to pay the LTA charge from the DC pot, and not the DB. It appeared to be something you could instruct your provider to do on your behalf.

Or just take the DB before the DC pension.

Pat38493

Scrudgy said:

Pat38493 said:

BennyBrownBoy 

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. 

I am not sure if that's allowed and/or possible.  In fact, the question was asked on another thread a few weeks ago and I can't remember if it was ever definitively answered, but it seemed like nobody could say that you are definitely allowed to do that (i.e. pay the LTA charge on a DB pension activation in cash from another source).  Also, like everything else, even if you could do that, it might not be the most cost effective approach depending on the exact scenario and the amount of DB pension reduction that your scheme proposed to apply for the tax charge.

In one of the videos on YouTube that James Shack does this exact example came up. It was definitely better to pay the LTA charge from the DC pot, and not the DB. It appeared to be something you could instruct your provider to do on your behalf.

The example given was that the retiree was looking to maintain as much annual guaranteed income as possible, and commutation of the DB element was the wrong way to do it. As the DC pot had enough money in it it was fully crystallised and used to pay the LTA fee with the remainder used to buy a fixed annuity to add to the DB income.

Can this be done without incurring an income tax liability on the amount taken from the DC fund?

BennyBrownBoy

Albermarle said:

It was definitely better to pay the LTA charge from the DC pot, and not the DB. It appeared to be something you could instruct your provider to do on your behalf.

Or just take the DB before the DC pension.

I guess that was my concern though - if I take the DB first I would reduce the amount of tax free cash available to take, as full crystallisation of the DC to get the max 25% would bump up against the LTA...

RogerPensionGuy

https://www.pensionsage.com/pa/Calls-for-immediate-increase-to-lifetime-allowance.php
.

Fingers crossed the government is listening and will actually change the silly way they have cooked the LTA these last few years.  

RogerPensionGuy

https://www.ii.co.uk/analysis-commentary/chancellor-jeremy-hunt-gives-thought-55-pension-tax-charge-ii526753

The above is just one of these similar press releases going about, hopefully he will fix the LTA and maybe tweek a fe oter bits and set new rules saying this stuff cannot be getting pulled about so often that people cannot plan.

Argonauts

LTA

the figure of over a million and 73 thousand for LTA 

is this the amount you actually take out of your pension ?
you could have more than that and start drawing your pension but not pay any more taxes ?

I sometimes get confused with pension totals up and down and climbing in next few years , so it’s the grand total before 75 of 1,073,000 pounds you take from your funds this includes the 25% part if you take this ?

your funds could fluctuate under the total and above but it’s the actual amount from them , I’ve no protection just noticed funds have almost got there .

many thanks