TFLS and CETV being increased in my deffered DB pension?

RogerPensionGuy

Hi.

My deffered DB scheme has just advised TFLS and CETVs will be increasing in October this year?

Basically CETVs will be  increasing by about 15% for members with at least 15 years before scheme NRA and blending up to just 5% for members at or beyond NRA.

TFLS will be increasing by 20% for all deferred members. 

I've had a few pension quotes inside 12 months and the commutation rate is just about 22 and if my basic working out is correct a 20% increase is looking like its going to 26.5% approximately.

So here I am now after years of planning and was fulling intended to do no commutation and activate the full scheme next April when apparently the LTA will be just a history item as I'm currently over by maybe 15%ish.

For information I have about  12%(DB scheme)AVCs in this DB scheme and I was intended to just harvest them at activation point next April.

DB scheme is inflation linked to a max of 5% PA and pays spouse 66% if I die first. 

For information I'm lucky enough to have to have a DC scheme currently 45% of the LTA limit and was planning draining that on flexi drawdown(possibly chunking out TFLS if desired)slowly ensuring I'm able to take the full LTA 25% of 268K over the coming years

It's currently looking like with SP(full) I'll be paying higher rate income tax on much output from the DC scheme over the years.

I'm currently 60 for information and paid employment and pension contributions will stop before Xmas 2023.

So after all the information above and all my planning over many years I'm trying to decide if the commutation rate going from 22 to 26.5% should change my mind?

PS. I can leave DB AVCs alone or transfer them to any scheme but I can see little point in not cashing them in when DB scheme is activated. 

https://prudentialstaffps.co.uk/announcements/2023/transfer-values-and-cash-lump-sums-the-impact-of-rising-interest-rates

Marcon

RogerPensionGuy said:

Hi.

My deffered DB scheme has just advised TFLS and CETVs will be increasing in October this year?

Basically CETVs will be  increasing by about 15% for members with at least 15 years before scheme NRA and blending up to just 5% for members at or beyond NRA.

TFLS will be increasing by 20% for all deferred members. 

I've had a few pension quotes inside 12 months and the commutation rate is just about 22 and if my basic working out is correct a 20% increase is looking like its going to 26.5% approximately.

So here I am now after years of planning and was fulling intended to do no commutation and activate the full scheme next April when apparently the LTA will be just a history item as I'm currently over by maybe 15%ish.

For information I have about  12%(DB scheme)AVCs in this DB scheme and I was intended to just harvest them at activation point next April.

DB scheme is inflation linked to a max of 5% PA and pays spouse 66% if I die first. 

For information I'm lucky enough to have to have a DC scheme currently 45% of the LTA limit and was planning draining that on flexi drawdown(possibly chunking out TFLS if desired)slowly ensuring I'm able to take the full LTA 25% of 268K over the coming years

It's currently looking like with SP(full) I'll be paying higher rate income tax on much output from the DC scheme over the years.

I'm currently 60 for information and paid employment and pension contributions will stop before Xmas 2023.

So after all the information above and all my planning over many years I'm trying to decide if the commutation rate going from 22 to 26.5% should change my mind?

PS. I can leave DB AVCs alone or transfer them to any scheme but I can see little point in not cashing them in when DB scheme is activated. 

https://prudentialstaffps.co.uk/announcements/2023/transfer-values-and-cash-lump-sums-the-impact-of-rising-interest-rates

What will you do with the lump sum if you take one from your DB scheme? Have you considered taking some tax free cash from your DB scheme, but not the maximum?

Simes122

I’ve been doing some modelling of mine as an HR taxpayer in retirement.  My commutation rate is 23.2 and it seems beneficial in most scenarios to commute.  £100 gross on the DB side is worth only £58 to me in Scotland net.  Whereas commuted to tax free at 23.2x, every £100 is worth £100.  So a good reason for taking an enhanced lump sum would be tax avoidance as a HR taxpayer in my view, as it would be 40 odd years until you’d be worse off.  If I’ve understood everything correctly!

RogerPensionGuy

Marcon said:

RogerPensionGuy said:

Hi.

My deffered DB scheme has just advised TFLS and CETVs will be increasing in October this year?

Basically CETVs will be  increasing by about 15% for members with at least 15 years before scheme NRA and blending up to just 5% for members at or beyond NRA.

TFLS will be increasing by 20% for all deferred members. 

I've had a few pension quotes inside 12 months and the commutation rate is just about 22 and if my basic working out is correct a 20% increase is looking like its going to 26.5% approximately.

So here I am now after years of planning and was fulling intended to do no commutation and activate the full scheme next April when apparently the LTA will be just a history item as I'm currently over by maybe 15%ish.

For information I have about  12%(DB scheme)AVCs in this DB scheme and I was intended to just harvest them at activation point next April.

DB scheme is inflation linked to a max of 5% PA and pays spouse 66% if I die first. 

For information I'm lucky enough to have to have a DC scheme currently 45% of the LTA limit and was planning draining that on flexi drawdown(possibly chunking out TFLS if desired)slowly ensuring I'm able to take the full LTA 25% of 268K over the coming years

It's currently looking like with SP(full) I'll be paying higher rate income tax on much output from the DC scheme over the years.

I'm currently 60 for information and paid employment and pension contributions will stop before Xmas 2023.

So after all the information above and all my planning over many years I'm trying to decide if the commutation rate going from 22 to 26.5% should change my mind?

PS. I can leave DB AVCs alone or transfer them to any scheme but I can see little point in not cashing them in when DB scheme is activated. 

https://prudentialstaffps.co.uk/announcements/2023/transfer-values-and-cash-lump-sums-the-impact-of-rising-interest-rates

What will you do with the lump sum if you take one from your DB scheme? Have you considered taking some tax free cash from your DB scheme, but not the maximum?

I don't need lumps of cash in reality, any cash would probably just get plonked in to stocks and shares ISAs.

Marcon

RogerPensionGuy said:

Marcon said:

RogerPensionGuy said:

Hi.

My deffered DB scheme has just advised TFLS and CETVs will be increasing in October this year?

Basically CETVs will be  increasing by about 15% for members with at least 15 years before scheme NRA and blending up to just 5% for members at or beyond NRA.

TFLS will be increasing by 20% for all deferred members. 

I've had a few pension quotes inside 12 months and the commutation rate is just about 22 and if my basic working out is correct a 20% increase is looking like its going to 26.5% approximately.

So here I am now after years of planning and was fulling intended to do no commutation and activate the full scheme next April when apparently the LTA will be just a history item as I'm currently over by maybe 15%ish.

For information I have about  12%(DB scheme)AVCs in this DB scheme and I was intended to just harvest them at activation point next April.

DB scheme is inflation linked to a max of 5% PA and pays spouse 66% if I die first. 

For information I'm lucky enough to have to have a DC scheme currently 45% of the LTA limit and was planning draining that on flexi drawdown(possibly chunking out TFLS if desired)slowly ensuring I'm able to take the full LTA 25% of 268K over the coming years

It's currently looking like with SP(full) I'll be paying higher rate income tax on much output from the DC scheme over the years.

I'm currently 60 for information and paid employment and pension contributions will stop before Xmas 2023.

So after all the information above and all my planning over many years I'm trying to decide if the commutation rate going from 22 to 26.5% should change my mind?

PS. I can leave DB AVCs alone or transfer them to any scheme but I can see little point in not cashing them in when DB scheme is activated. 

https://prudentialstaffps.co.uk/announcements/2023/transfer-values-and-cash-lump-sums-the-impact-of-rising-interest-rates

What will you do with the lump sum if you take one from your DB scheme? Have you considered taking some tax free cash from your DB scheme, but not the maximum?

I don't need lumps of cash in reality, any cash would probably just get plonked in to stocks and shares ISAs.

Not sure how much your lump sum would be, but you're obviously constrained by the annual ISA allowance - so you might need to find something else to do with the cash while you 'drip feed' it into ISAs.

RogerPensionGuy

Simes122 said:

I’ve been doing some modelling of mine as an HR taxpayer in retirement.  My commutation rate is 23.2 and it seems beneficial in most scenarios to commute.  £100 gross on the DB side is worth only £58 to me in Scotland net.  Whereas commuted to tax free at 23.2x, every £100 is worth £100.  So a good reason for taking an enhanced lump sum would be tax avoidance as a HR taxpayer in my view, as it would be 40 odd years until you’d be worse off.  If I’ve understood everything correctly!

A good point here, although 26.5 is much more attractive than 22, considering the advantages of avoiding some HR tax maybe makes 26.5 irresistible. 

Mulling over my own numbers including possible future HR tax, 28 would be irresistible currently in my head.

I can only imagine the pension actuarial people are wanting to offload potential liability and are upping CETVs and commutation rates to achieve this.

The HR tax bracket seems to be my real dilemma, I'm guessing that personal income tax bands will be unfrozen before April 2028 but, have no idea what it will be in 10 or 15 years time. 

Marcon

RogerPensionGuy said:

Simes122 said:

I’ve been doing some modelling of mine as an HR taxpayer in retirement.  My commutation rate is 23.2 and it seems beneficial in most scenarios to commute.  £100 gross on the DB side is worth only £58 to me in Scotland net.  Whereas commuted to tax free at 23.2x, every £100 is worth £100.  So a good reason for taking an enhanced lump sum would be tax avoidance as a HR taxpayer in my view, as it would be 40 odd years until you’d be worse off.  If I’ve understood everything correctly!

A good point here, although 26.5 is much more attractive than 22, considering the advantages of avoiding some HR tax maybe makes 26.5 irresistible. 

Mulling over my own numbers including possible future HR tax, 28 would be irresistible currently in my head.

I can only imagine the pension actuarial people are wanting to offload potential liability and are upping CETVs and commutation rates to achieve this.

'Offloading potential liability' is not the decision of the actuaries. They advise on the numbers and have clearly recommended adjustments to meet the requirement that these offer 'fair value' in the light of changing financial market conditions. 

RogerPensionGuy

Simes122 said:

I’ve been doing some modelling of mine as an HR taxpayer in retirement.  My commutation rate is 23.2 and it seems beneficial in most scenarios to commute.  £100 gross on the DB side is worth only £58 to me in Scotland net.  Whereas commuted to tax free at 23.2x, every £100 is worth £100.  So a good reason for taking an enhanced lump sum would be tax avoidance as a HR taxpayer in my view, as it would be 40 odd years until you’d be worse off.  If I’ve understood everything correctly!

I've just been reviewing this thread and updating my head.

With the personal tax bands frozen till April 2028 more than 4.5 years away and I don't think they will revoke the freeze and guessing they won't raise they to catch up with inflation so I'm currently looking at maximum DB commutation and feel like the poster here thinking it would take 40 years to be at a loss of value as long as I use the tax-free cash in a balanced effective way.

The new commutation and CETV rates will be effective next month and then I'll request a pension quote with all the options and if indeed 26.5 rate or more is confirmed I'll be thinking hard about what I do.

After I get the data I'll best research how I can best use use that tax-free cash to best effect.

By using maximum TFLS outa the DB scheme that will allow me to move some DB AVCs in to a DB pot and probably leave well alone considering the IHT advantages that will hopefully exist in that vehicle. 

I'm mindful that the LTA removal is indeed too good to be true for the long term and more changes will be not too far away and to this end, I have researched how the various pension protections were implemented when the LTA was hammered downwards in them perverse movements way back.

I'm hoping/banking that if and when they tinker having an undiluted  DC pot and probably making no more contributions will enable be to attain best results overall. 

Looking like I need to consider where best to secure the probably TFLS soon.

Any views comments most welcome. 

Cheers Roger. TIA.

RogerPensionGuy

Just a little update on this thread and thanks for posters. 

I eventually got back my DB activation quote as they are snowed under because when commutation and CETVs going up, many people waited so they now doing a lot of quotes. 

As expected my rate has increased from X 22 to 25,  not my hopeful 26.5, but still good a good uplift, they explained older people get less increase than younger people because the way it works out.

I've been doing loads of spreadsheets and calculations and trying to best as possible factor in delaying, avoiding, mitigating higher rate tax of 40% as far as possible.

I used that money helper annuity tool and tried a like for like and in my case, I've found the tax free cash can be more helpful for me and appears to cover many angles I've looked at.

So I'm currently 99% feeling I'll do the DB activation in January 2024 and do the management 25% commutation and park that cash in sensible places I feel appropriate. 

My only hesitation now is do I activate January 2024 and get a LTA % value on my record or decide to delay activation until after 06APR2024 to hopefully avoid any LTA % data tag. Reason for this feeling is with my DB and DC schemes I'm a good bit of the current LTA figure. 

I feel sure in the not too distant future, the government will be tinkering again with pensions, LTA and IHT reference pensions and am trying to pick the best side of activation 5/6th of April 2024 when the LTA is just historic. 

I've gone over and over how pensions got treated as governments kept reducing the LTA these last many years and the protections they allowed appeard reasonable especially if no more pension inputs were made and I fit in here, I don't expect to put in anymore pension inputs. 

I still find it hard to believe personal tax allowance will remain frozen till 6th of April 2028, but I'm planning they will and had decided to augment my income streams accordingly, a few years back, I was 99% not going to remove tax-free cash out of DB scheme, but the way I currently see it, taking out the maximum tax-free cash is now the most prudent path for me.

Like always, any views comments most welcome. 

Cheers Roger. 

Secret2ndAccount

Thank you for the update Roger. If it was me, I too would be strategising every different scenario 16 different ways. However, just my 2 cents:
It is more important to pick a solution which meets your needs under all reasonably foreseeable future taxation scenarios than to worry about maximising returns versus one or several unknowable future taxation possibilities.  It's better to be sure that the floor will always be above the water level, rather than trying to maximise the height of the ceiling.

RogerPensionGuy

Secret2ndAccount said:

Thank you for the update Roger. If it was me, I too would be strategising every different scenario 16 different ways. However, just my 2 cents:
It is more important to pick a solution which meets your needs under all reasonably foreseeable future taxation scenarios than to worry about maximising returns versus one or several unknowable future taxation possibilities.  It's better to be sure that the floor will always be above the water level, rather than trying to maximise the height of the ceiling.

Thanks for posting.

16 different scenarios is a good view and staying above the water level is another.

I have planned and been lucky also to have much more pensions/savings than I probably will even need, I am keeping my plans and options very open, but making some decisions and choices about some pension type stuff is very one-off-pulling or activation.

I am trying to keep my plans fluid and balanced and am sorta looking at keeping any DC pots well stocked if ever needed and the current IHT rules look a good route.

I have still not decided to activate my DB scheme and 25% tax before or after the 6th of April 2024 at the LTA changes that little bit more. I mostly feel before or after will make no difference in the fullness of time, but am currently feeling doing just after the 6th April 2024 is the way to go, also any delaying activating my DB with increase its PA value and the tax-free portion will be bigger.

As others have said here, lets see what stuff comes out and gets talked about in the autumn statement this month.