LTA with 25% tax free?

gravlax

The tax-free pension commencement lump sum limit is being frozen at £268,275. What if you were not planning on taking a one-off 'commencement lump sum', but planned to take a regular pension income every year with 75% taxable and 25% tax free for as long as you draw your pension? 

NoMore

It will be tracked such that the max tax free cash you can take over the lifetime of the pension will be £268275, how this will be done is unclear, but suggestions are tracking it similar to how LTA was tracked via crystallised and uncrystallised funds.

gravlax

Right, so once you've taken a cumulative £268275 tax free over the years, from that point on you pay tax on all your pension income!

If the tax free amount remains frozen with inflation the tax free pension income will become negligible on a big pension pot in real terms. So you can use a bigger pension for inheritance tax planning, but for an income it won't be so attractive in the future.

 

NoMore

Yes I suspect that the current cap will be deflated in real terms by successive governments not choosing to increase it. Until it gets to a point where your average man in the street is suddenly aware that his whole pension is not 25% tax free.

jim8888

NoMore said:

Yes I suspect that the current cap will be deflated in real terms by successive governments not choosing to increase it. Until it gets to a point where your average man in the street is suddenly aware that his whole pension is not 25% tax free.

That might be quite far away, given what I just clipped from The Telegraph!

"After a lifetime of saving, the average UK pension pot stands at £37,600 for those between 55 and retirement age.

This puts the average UK pension pot’s income at around £12,000 a year (including a full state pension), well below what is needed for a moderate income in retirement."

jaypers

I have a query about a 100% crystallisation event when the LTA was lower. Is the difference now available or is the original crystallisation, and available tax free cash, baked in? 

MK62

jim8888 said:

NoMore said:

Yes I suspect that the current cap will be deflated in real terms by successive governments not choosing to increase it. Until it gets to a point where your average man in the street is suddenly aware that his whole pension is not 25% tax free.

That might be quite far away, given what I just clipped from The Telegraph!

"After a lifetime of saving, the average UK pension pot stands at £37,600 for those between 55 and retirement age.

This puts the average UK pension pot’s income at around £12,000 a year (including a full state pension), well below what is needed for a moderate income in retirement."

Who said this policy change was to benefit average people?......

Now the PCLS is frozen, that brings up an interesting conundrum for some with larger pension pots......unless it's index linked in the future, there might be a flurry of people taking the max TFLS now, rather than waiting to see the limit devalued by inflation over the years........UFPLS and phased drawdown may just have become a little less attractive for some.

Silvertabby

jim8888 said:

NoMore said:

Yes I suspect that the current cap will be deflated in real terms by successive governments not choosing to increase it. Until it gets to a point where your average man in the street is suddenly aware that his whole pension is not 25% tax free.

That might be quite far away, given what I just clipped from The Telegraph!

"After a lifetime of saving, the average UK pension pot stands at £37,600 for those between 55 and retirement age.

This puts the average UK pension pot’s income at around £12,000 a year (including a full state pension), well below what is needed for a moderate income in retirement."

I don't think it's quite as bad as that.  This oft quoted 'average' £37,600 is per DC pot, and many people will have more than one or a combination of DCs/DBs.

If we were to be factored into these figures, then we would show as having zero pension pots between us.  Not one penny in any DC scheme.  But we do have over 80 years of public sector DB pensions.

I've long suspected that it's a ploy by pension companies to encourage people to save more.

dunstonh

jim8888 said:

NoMore said:

Yes I suspect that the current cap will be deflated in real terms by successive governments not choosing to increase it. Until it gets to a point where your average man in the street is suddenly aware that his whole pension is not 25% tax free.

That might be quite far away, given what I just clipped from The Telegraph!

"After a lifetime of saving, the average UK pension pot stands at £37,600 for those between 55 and retirement age.

This puts the average UK pension pot’s income at around £12,000 a year (including a full state pension), well below what is needed for a moderate income in retirement."

The average person has multiple pensions.   

Albermarle

Silvertabby said:

jim8888 said:

NoMore said:

Yes I suspect that the current cap will be deflated in real terms by successive governments not choosing to increase it. Until it gets to a point where your average man in the street is suddenly aware that his whole pension is not 25% tax free.

That might be quite far away, given what I just clipped from The Telegraph!

"After a lifetime of saving, the average UK pension pot stands at £37,600 for those between 55 and retirement age.

This puts the average UK pension pot’s income at around £12,000 a year (including a full state pension), well below what is needed for a moderate income in retirement."

I don't think it's quite as bad as that.  This oft quoted 'average' £37,600 is per DC pot, and many people will have more than one or a combination of DCs/DBs.

If we were to be factored into these figures, then we would show as having zero pension pots between us.  Not one penny in any DC scheme.  But we do have over 80 years of public sector DB pensions.

I've long suspected that it's a ploy by pension companies to encourage people to save more.

 On the other side they do not seem take into account those with zero pension provision, which of course would bring the average down. So you can almost pick any figure you like.

lisyloo

Albermarle said:

Silvertabby said:

jim8888 said:

NoMore said:

Yes I suspect that the current cap will be deflated in real terms by successive governments not choosing to increase it. Until it gets to a point where your average man in the street is suddenly aware that his whole pension is not 25% tax free.

That might be quite far away, given what I just clipped from The Telegraph!

"After a lifetime of saving, the average UK pension pot stands at £37,600 for those between 55 and retirement age.

This puts the average UK pension pot’s income at around £12,000 a year (including a full state pension), well below what is needed for a moderate income in retirement."

I don't think it's quite as bad as that.  This oft quoted 'average' £37,600 is per DC pot, and many people will have more than one or a combination of DCs/DBs.

If we were to be factored into these figures, then we would show as having zero pension pots between us.  Not one penny in any DC scheme.  But we do have over 80 years of public sector DB pensions.

I've long suspected that it's a ploy by pension companies to encourage people to save more.

 On the other side they do not seem take into account those with zero pension provision, which of course would bring the average down. So you can almost pick any figure you like.

yes, but I think we can say that the majority of ordinary people don't have to worry about 25% of £1.073 million at the moment.
Over may years/decades it would deflate, but having been planning around LTA for several years and it being gone in almost a heart beat (it wasn't on the radar for long as far as I'm aware), the real take away here for me is that all the rules we've been planning on for years and even decades can change very quickly. This is why some people bought property years ago (although much less attractive now).
So who knows??