LTA update since the April announcement

bucksman

I took my Teacher Pension in September (2022), leaving my Pru AVC without crystalising it due to being close to the LTA. I have stopped paying into the AVC. Following the removal of the LTA, I could now crystalise the AVC without LTA tax implications. However, I read something the other day that this only applies to those taking pensions after 5 April 2023.   I am considering an annuity for the AVC funds (as these look better now), but I want to avoid the LTA tax risk. I realise that this is treated as taxable income and that I may end up paying a higher rate of income tax. Advice would be appreciated on this, please.

bucksman

Any thoughts on the above would be appreciated - or where I can best find advice on this, many thanks 

coyrls

bucksman said:

I took my Teacher Pension in September (2022), leaving my Pru AVC without crystalising it due to being close to the LTA. I have stopped paying into the AVC. Following the removal of the LTA, I could now crystalise the AVC without LTA tax implications. However, I read something the other day that this only applies to those taking pensions after 5 April 2023.   I am considering an annuity for the AVC funds (as these look better now), but I want to avoid the LTA tax risk. I realise that this is treated as taxable income and that I may end up paying a higher rate of income tax. Advice would be appreciated on this, please.

The fact that you took your Teacher Pension prior to 5 April 2023 doesn't mean that the LTA will apply when taking your AVC pension after 5 April 2023.  Each pension (or in your case pension element) is treated separately with respect to the April 2023 date.

jaypers

Once you have crystallised everything up to the lifetime allowance, you are now able to also take funds above this without any lifetime allowance charge. For this tax year, benefit crystallisation events (BCEs) are still measured against Lifetime Allowance – but the LTA charge is now 0% (as opposed to 25% previously). Following the passing of further legislation, this measurement will cease completely next tax year, 2024/25, but net result will be the same. What happens if/when Labour are in power, nobody knows but with such a complex thing, it would be a miracle if they could easily reverse anything.

For info, I have started to take advantage of some of my excess LTA funds. Was a bit of a painful experience to start with as my providers systems weren’t really set-up properly with the changes but things now a lot smoother now it’s all in place.

As always, speak to an independent advisor to see what is best for your goals and circumstances. 

zagfles

bucksman said:

I took my Teacher Pension in September (2022), leaving my Pru AVC without crystalising it due to being close to the LTA. I have stopped paying into the AVC. Following the removal of the LTA, I could now crystalise the AVC without LTA tax implications. However, I read something the other day that this only applies to those taking pensions after 5 April 2023.   I am considering an annuity for the AVC funds (as these look better now), but I want to avoid the LTA tax risk. I realise that this is treated as taxable income and that I may end up paying a higher rate of income tax. Advice would be appreciated on this, please.

The LTA charge is (or was) a charge at the point of crystallisation, not an extra income tax charge. But as the LTA charge is now 0%, all the LTA does this year is serve as a limit on how much tax free cash you can take. You could take 25% of your remaining LTA as tax free cash (or 25% of the pot if less) and buy an annuity with the rest, the annuity would be taxed as income as normal.

bucksman

Thank you for your posts confirming the position of the LTA. Noted, too, the possible reversal under a Labour government. 

RogerPensionGuy

bucksman said:

Thank you for your posts confirming the position of the LTA. Noted, too, the possible reversal under a Labour government. 

For further information, if I'm correct, when governments of any flavour have changed/reduced pension stuff previously they have always offered various types of protections which maybe okay for some people which can mitigate or possibly even fully protect a person's plan.

These protections are worth reading as examples maybe, most information going about would expect that if pensions are attacked/reduced again by any government similar types of protections are put in place again. 

Reference LTA, AA, person's age and personal tax bands frozen till 2028 some people are pumping into pensions now in case any negative changes appear. 

Nobody knows the next changes, but from a historical point of few, it sure seems likely they will be tinkering about in the future and thus knocking people's confidence in doing the right stuff and planning long term pension strategies. 

If I was young I would be very weary about sinking too much in unfortunately, I think a good long planned ISA strategies maybe my pick.

I'll try putting a link on here about them pension protections I was going on about. 

.....
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm093100
...
https://www.kentpensionfund.co.uk/local-government/current-member-paying-in/tax-controls-and-pensions2/individual-and-fixed-protection-2016

Albermarle

bucksman said:

Thank you for your posts confirming the position of the LTA. Noted, too, the possible reversal under a Labour government. 

This has been discussed at length on this forum. If there is a consensus then it is that.

The Labour statement that they would reverse it, was a kind of knee jerk reaction to a proposal that benefits better off people with big pensions ( what else could they say/do).

Unwinding it will be tricky and you still have the problem with NHS pensions for senior Doctors.

The LTA stop also included a limit on tax free cash, so not quite as generous as it first seems anyway.

The LTA stop raised the issue of IHT exemptions for pension pots higher up the agenda. The respected think tank the IFS has highlighted more than once the unusually generous tax treatment of legacy pension pots. This may be a more likely area for new legislation under a Labour Govt.