Lifetime allowance

alfabet

In 2019 I posted a thread asking if I should be concerned about the lifetime allowance: https://forums.moneysavingexpert.com/discussion/6077318/lifetime-allowance/

Back then I was 39 with a DC pot of £190k.

The general view was that I was a long way off retiring, the rules could change several times before I do, and I shouldn't be too concerned.

Fast forward a few years (and one pandemic) and I am now 42 with a pot of £325k.

The post-covid equity surge, combined with continuing salary sacrifice contributions (c. £25k pa) has pushed me to this level.

In this time, the LTA has been further frozen until 2028, and I'm wondering if I ought to be starting to get twitchy...

What do people think?

Scrudgy

If you exceed the LTA at any time in the future, just remember its still a nice problem to have. Its better than being under the LTA.

If you get free money from your employer to contribute to your pension, you are still better to put this in to you pension even once the LTA has been exceeded.

If you exceed the LTA and your company does not contribute money to your pension, then you should divert all spare cash to your ISA's/other savings.

If you exceed the LTA and are lucky enough to work for one of those employers who let you take your pension contributions as salary, then you should divert this money to ISA's etc, and not your pension.

 

Pat38493

I wouldn’t start being concerned yet - if it reached 80% of the LTA then maybe look into it a bit more, but as said above, in some cases and depending on your marginal tax rate, you will still be better off, or at least not worse off, paying into the pension even with LTA issues.

Albermarle

alfabet said:

In 2019 I posted a thread asking if I should be concerned about the lifetime allowance: https://forums.moneysavingexpert.com/discussion/6077318/lifetime-allowance/

Back then I was 39 with a DC pot of £190k.

The general view was that I was a long way off retiring, the rules could change several times before I do, and I shouldn't be too concerned.

Fast forward a few years (and one pandemic) and I am now 42 with a pot of £325k.

The post-covid equity surge, combined with continuing salary sacrifice contributions (c. £25k pa) has pushed me to this level.

In this time, the LTA has been further frozen until 2028, and I'm wondering if I ought to be starting to get twitchy...

What do people think?

I would concentrate on carrying on with the contributions and taking advantage of the tax relief. 
In the next few years anything could happen. 
Tax relief reduced
LTA abolished
You get made redundant/divorced/injured/ill etc 

Fill your boots while you can.

HeyYeah

Albermarle said:

I would concentrate on carrying on with the contributions and taking advantage of the tax relief. 
In the next few years anything could happen. 
Tax relief reduced
LTA abolished
You get made redundant/divorced/injured/ill etc 

Fill your boots while you can.

Also a dip or crash in the markets would help although be less desirable…

SpeedSouth

Your numbers are near identical to mine.  Post COVID 2020 mine dropped to 190k at 39.  I'm now 41 (42 later in the year), and my 2 pots are £330k.

I've asked similar and will continue putting the full 40k into pension for the foreseeable each year.  I'm hoping to retire by 55-58. 

My theory at present is full 40k to the pension whilst HRT relief and SS at work exists.  Ill start putting more in ISA to bridge the gap till I can draw the pension (guessing 58 for us) as I get begin hopefully approaching the LTA.

I only get 5% employer match but everything I read suggests this is still the most efficient way to get max tax relief. 

IHT is very much at the rear of the plan given I'll likley need to spend the pension but having it protected from the estate at present is the very last  perk for consideration as well.

Of course rules could and likley will change but 15 years is a long time

saucer

15 years is indeed a long time and I think there is a high possibility of a rethink on the LTA, whether by this government, or a Labour one, given the fact that it is encouraging some key staff to retire earlier than they otherwise would have.

Pat38493

saucer said:

15 years is indeed a long time and I think there is a high possibility of a rethink on the LTA, whether by this government, or a Labour one, given the fact that it is encouraging some key staff to retire earlier than they otherwise would have.

I am probably an edge case but to be honest, the thing that's pushing me to retire earlier even more than the LTA is the 60% tax trap.  This is a bit of a strange system that works a bit like the old stamp duty rates on house prices did so that nobody would ever buy a house for £501K because they would pay massively more stamp duty than if they paid 499999.  2024/5 would be the last year when I have rollover available to avoid it by maxing out pension contributions.  After that I have no intention of paying 60% tax to the current shower.  (As an aside, I never resented paying tax in my whole life until seeing the rank incompetence borderline corruption of the current government but that's not the topic on this forum!)

For sure if I carry on working after that (unlikely) I'll give money to charitable causes rather than paying 60% tax.

MoneySavingGerbil

I'd echo other comments. Ignore the LTA and just keep contributing for now. 42 year old me loved my job. 53 year old me is decidedly more cheesed off with work and very glad 42 year old me was contributing as much as he was.

You really don't know what the future holds either for yourself personally or for future tax treatment of pension contributions. All you can do is make use of the opportunities you currently have available to make contributions.

alfabet

Thanks everyone for your comments. I will continue reaping the lovely tax relief...

GrubbyGirl_2

I went £167k over the LTA when I retired in 2019.  I was ok until it was dropped from £1.25m to £1m in 2016 at that point I had already gone over.  I forget the actual calculations but I think I paid 25% tax on the excess.  I have a final salary pension and to pay the tax my pension was reduced by £2k per year.  However, as my pension is inflated I got back to my original starting point within 2 years so I'm happy