What do MSE'ers do when LTA (nearly) reached

Ciprico

What is the consensus of what people do ?

Seems little point in taking stock market risks for gains that will be taxed at 55%

or is the view that the risk is still worth it and 55% of something is better than nothing.

I'm thinking of investing 100% in Gilts, so some return (maybe 3%) but no risk to capital. I could do this and freewheel over the LTA before taking any pension

Pulling the 25% TFLS seems unhelpful now CGT is about to be reduced

Adyinvestment

Sit back and look forward to a nice retirement 

EdSwippet

Ciprico said:

What is the consensus of what people do ?

I don't think there's going to be a consensus. Everybody's situation is different. For example, some people value a pension purely as an inheritance tax bypass, so for them, the 55% LTA penalty may never come into play.

Here is what I did.

• Crystallised my entire pension at the LTA, and reinvested the 25% PCLS into identical investments outside the SIPP, with the aim to transition them into ISAs over time. Rationale: even 20% capital gains tax and 33.25% dividend tax are both below the 55% LTA penalty rate. And capital gains tax can be deferred (potentially forever) by using passive index funds.
• Rebalanced my investments overall so that I hold gilts nowhere except in my crystallised pension. Rationale: slower growth assets belong in the account with the worst tax treatment. (Last year's appalling gilts market certainly worked there!)
  
• Created a plan to withdraw all nominal gains from my crystallised pension sufficiently to avoid the second LTA test at age 75. Rationale: even 45% additional rate tax is below the 55% LTA penalty rate (the appalling effective 60% rate at £100-125k of income remains a danger).
• Retired four years earlier than planned.

If you search the forum, you should be able to turn up several previous discussions on this topic.

Albermarle

Ciprico said:

What is the consensus of what people do ?

Seems little point in taking stock market risks for gains that will be taxed at 55%

or is the view that the risk is still worth it and 55% of something is better than nothing.

I'm thinking of investing 100% in Gilts, so some return (maybe 3%) but no risk to capital. I could do this and freewheel over the LTA before taking any pension

Pulling the 25% TFLS seems unhelpful now CGT is about to be reduced

It seems to make sense not to go too high risk in a pension hovering around LTA. You are risking a big drop and if it goes the other way , a larger LTA tax charge. So a bit of a lose/lose situation. To what extent you lower the risk and how, is a personal choice. Personally I have used wealth preservation funds and diversified to some extent into infrastructure funds, precious metals etc.+ still some of the usual mainstream equity/bond funds. What you might call more steady Eddy investments . In my much smaller ISA I am invested more aggressively.

Cus

I am a number of years away from being able to access my SIPP and it's already over LTA.  I just keep pumping in the free money from work and hope that the government will remove it in the future.  I also have it at a lower risk than I would probably have otherwise.

pip895

I crystallised and moved the 25% into 1. a small investment property, 2. Isas (Both mine and OHs over several years).  I have also started paying myself a pension up to my basic rate limit.  I didn't move to safer assets though.  Currently I don't feel threatened by the LTA, but I am rather hoping the threat might appear again😉.

I also think the system will change before I next get checked in 15 years or so, but I'm not banking on the change being one for the better! 

ex-pat_scot

If hitting the LTA, I'd first do a happy dance and a mini celebration (perhaps a nice bar of chocolate as a treat).

In terms of financial planning, I'd rethink my attitude to risk / portfolio mix. At the moment it's 100% global equity tracker, but I might start derisking some of the surplus into VLS80 or similar.

In general terms, I'm thinking of following @EdSwippet approach
- keep ploughing in, even over LTA, to take full advantage of er matching, and keep me as far out of the 62% marginal bracket as possible
- crystallise at 55
- take the 25% lump sum and wrap into ISAs (me and Mrs XPS)
- take more adventurous risk in ISAs and less in unwrapped / SIPP
- minimise CGT with the unwrapped, either by paying off mortgage and / or optimising to CGT thresholds for me & Mrs XPS
- take out any nominal growth each year (to avoid the BCE75 test)
- at SPA, possibly defer SP until 75, so that I can take max out of SIPP before hitting HR tax threshold (if I take SP at 67, then I'll have 8 years where the SP uses up pretty much all of my nil rate band, so I will only be able to take £37500 ish out of the SIPP before hitting the HR threshold. If I defer SP, then I can take out £50,000 from SIPP each year before hitting HR threshold)

EDIT - will also look at keeping my relatively small DB, as its LTA treatment would be far more beneficial than doing a DB to DC transfer (even if that were still possible)

Of course, the likelihood of rules remaining as they are, when I get to 55 and 75, are pretty low.
But, in the absence of any other insights, I have to play with the rules we have.

Pat38493

Question is - how do you judge whether you are in danger of busting LTA and when?  If you have a combination of DB and DC assets, you have various levers like, when do you take your DB pension, and how much will your pot grow both before and during retirement, and is it even worth basing calculations on the current LTA value for things which won't happen for a decade or more?

Example - my current LTA exposure if taking DB early at 55 and based on zero growth but just planned contributions is about 71%.  If taking DB at NRA of highest portion, it's 90% (based on last NRA estimate received from DB pension provider).  This is not even accounting for any growth in the next 11 years till the DB NRA, let along after that.

As such it's highly probable I will hit the LTA at some point if it doesn't change, but should I really be making decisions in the next couple of years based on an assumption that LTA won't change in the next 11 years?

Albermarle

but should I really be making decisions in the next couple of years based on an assumption that LTA won't change in the next 11 years?

You can only try and hopefully make some kind of realistic prediction.

Mine would be that it seems unlikely it will be reduced, and that it will start to increase again at some point. Maybe with inflation, once inflation has calmed down. Of course it will be lower in real terms having been frozen through the current period of high inflation.

green.lander_2

Hi, 

I just checked and i m now just over LTA at age 62. This is made up of a good DB and DC scheme. As my employers is putting in 20% to DC i will still carry on with this for a while and take the hit. Going to have to decide to take DB and the hit on DC or otherwise. If i leave the DB until 65 i will be well over LTA. All this will trigger early retirement.

randompenitent

I was at the LTA at age 59 a couple of years back. I stopped working (not specifically because of the LTA, but it seemed I had enough money for a good retirement) and took a little less than 25% PCLS. I've reinvested that in into cash (while deciding how to reinvest it), a general investment account and I'm drip-feeding an ISA. Last year's market falls mean I would have been well below LTA by late 2022 so I've not made any draw downs, but if and when markets pick up again, I'll begin an annual drawdown at least the equivalent of my personal allowance and perhaps more if it looks like I'm seriously in danger of hitting the age 75 limit. Always assuming I live that long, of course.