About to activate pension but currently over the LTA?

saucer

You probably saw the Telegraph on Saturday suggesting they’re looking at the LTA as well as the Annual Allowance. I don’t know if that is just made up or something that is trailed to test the water. 

leosayer

RogerPensionGuy said:

leosayer said:

Pat38493 said:

One further point here - OP says stopping paid employment “anytime in the next year or so”.

Putting the DB pension into payment purely in order to limit future LTA exposure means you will pay (40%?) tax on all the pension payments until you stop work - another point to consider in the decision.  Also - if you put your pension into payment now and the increases are capped, does this mean you won’t get the full inflation increase if inflation remains high in the next months?

Agree with all your points.

I don't see one reason for the OP to commence the DB pension until the tax year after he has stopped working. 

It can be easy to get so caught up in avoiding the LTA tax that you end up worse off overall.

I could commute the 30K PA to 22.5K PA and get a lump of tax-free cash and then limit my gross pay to about 27K via pension contributions.

However I agree trying to jump around the various moving pension rules may not achieve best results, I will just have to mull over all the info and make a balanced decision.

Making further pension contributions is not a way to mitigate the LTA tax.

For LTA purposes, there is unlikely to be a material difference between taking the full 30K DB pension or taking 22.5K + PCLS.

RogerPensionGuy

Hi All.

I've just been going over old threads and reread this one and decided to put an update on it.

I eventually decided to leave pensions cooking hoping it may work put better.

I was happy with the last round of pension updates on budget day.

I think the LTA will be reintroduced at some point during the next elected government, 2025/2026 is my guess, also think thd IHT rules on pensions will be adjusted.

My plans remain on track to stop paid employment by Xmas time this year and I currently plan to activate my DB scheme just after the 6th of April 2024 to avoid getting any LTA % data applied anywhere.

After DB activated I'll drawdown DC scheme keeping my income just up to the 40% income tax level and taking out 25% tax free bites in this drawing down phaze.

As the DB rises over my age 62 to 67 I'll reduce DC flow to avoid paying 40% income tax and allowing DC pot to cook.

At 67 get full state pension and DB scheme and then just drawdown funds out of DC as and when I need or want cash probably paying 40% income tax on all DC withdrawals unless the 40% income tax band gets would up.

If anyone has any views or points about my plan above, I'm all ears please?

Cheers Roger. 

GrubbyGirl_2

I'm not sure I'd be too hung up on LTA.  I retired 3.5 years ago with a final salary pension and was significantly over the LTA of £1.055m.  I had a tax bill of £41k which reduced my pension by just over £2k per year.  However my pension has increased with inflation and I am now receiving £5 a year more than my starting pension before the tax was taken.  My salary wouldn't have increased anything like that in the same 3.5 years.

Why are you waiting until April to draw your DB pension?  If you can get it before then at no reduction at Christmas when you plan to retire you'll at least get a quarter of next years uplift

Tommyjw

GrubbyGirl_2 said:

I'm not sure I'd be too hung up on LTA.  I retired 3.5 years ago with a final salary pension and was significantly over the LTA of £1.055m.  I had a tax bill of £41k which reduced my pension by just over £2k per year.  However my pension has increased with inflation and I am now receiving £5 a year more than my starting pension before the tax was taken.  My salary wouldn't have increased anything like that in the same 3.5 years.

Why are you waiting until April to draw your DB pension?  If you can get it before then at no reduction at Christmas when you plan to retire you'll at least get a quarter of next years uplift

My reading if it is, and at this point we are all just guessing, because if he takes it there is still a LTA % attached to it, even if in reality it means nothing. Then, if Labour bring in there would be a worry they would count that LTA. However, doing it when LTA is abolished completely , means it is much more unlikely anything Labour put into place with retrospectively include it.

But yep it's all a guessing game really!

RogerPensionGuy

To answer the post 2nd above. 

The DB scheme is deffered and increases every day I delay taking it.

The DC scheme is just the reserve tank and will be drained as required keeping me at the 40% income tax barrier. 

The state pension and DB will have me probably at the 40% tax or above I guess in 6 years from now.

Paid employment till this Xmas time will keep me close to 40% income tax.

And as for post just about, as I'm cooking the DC pot longer term, I currently feel a large pension event or BCE is best to do after the LTA is abolished as from the 6th of April 2024.

The tinkering of pensions so often is just so silly, trying to plan sensible pension options is so much hit and miss, luck and timings can be helpful or unhelpful.