Am I saving too much into my pension?

P1Fanatic

Honestly not something I thought I would ever be asking as have always had the mindset of "put in as much as I can due to tax efficiencies"

I'm 46 (turning 47 in April) and my pension balance is currently £585k. I'm paying in £40k per year via salary sacrifice. I can't access it until age 57 (or will that be 58 as keep reading contradicting info on that?) but I just ran a compound interest calculation assuming 5% average growth over the next 5yrs (5yrs as I plan to retire in 5-6yrs time if things go to plan) and keeping that same level of annual contribution and it shows me getting very close to the LTA limit and there is another 5yrs of potential growth before I can access it.

Anything over the LTA is taxed at 55% if taking a lump sum, so should I be concerned and look at reducing my contributions or is there something I am missing i.e. my calculations of growth are way off? I tried to find some kind of LTA specific calculator but no luck there.

Thanks in advance.

penners324

There is no LTA. Government got rid of it a year ago

dunstonh

There is a good chance that any alternative would be subject to IHT given the sums involved.   So, if you diverted some money, you could just end up replacing one tax (that doesn't exist in the same way you think it does) with an alternative tax.

P1Fanatic

penners324 said:

There is no LTA. Government got rid of it a year ago

Wowsers how did I miss that. Guess I was worrying about nothing. That makes things a lot simpler. Thanks.

penners324

To be more accurate the LTA was raised to infinity on April 5th 2023. On 5th April 2024 the LTA will be removed completely 

FIREDreamer

P1Fanatic said:

penners324 said:

There is no LTA. Government got rid of it a year ago

Wowsers how did I miss that. Guess I was worrying about nothing. That makes things a lot simpler. Thanks.

penners324 said:

To be more accurate the LTA was raised to infinity on April 5th 2023. On 5th April 2024 the LTA will be removed completely 

Labour are likely to win the next election and have said they are bringing it back, however they haven’t provided any details of how this would happen.

Marcon

FIREDreamer said:

P1Fanatic said:

penners324 said:

There is no LTA. Government got rid of it a year ago

Wowsers how did I miss that. Guess I was worrying about nothing. That makes things a lot simpler. Thanks.

penners324 said:

To be more accurate the LTA was raised to infinity on April 5th 2023. On 5th April 2024 the LTA will be removed completely 

Labour are likely to win the next election and have said they are bringing it back, however they haven’t provided any details of how this would happen.

...and of course one believes everything said by any political party, especially in the run up to a general election...

Mark_d

I'm in a similar situation to you @P1Fanatic.  I'm a couple of years younger than you with a marginally smaller pension pot, paying £30k in to pension each year.  Removal of the lifetime allowance was quite a relief when I first heard about it.

I understand that lifetime allowance applies at the time you crystallise your funds, and then only on the amount of funds you crystallise.  Suppose the LTA was £1m and you have £1m when you retire at 60.  Suppose you take £50k each year as cash but leave the remaining funds invested, the the LTA would only kick in after you've taken out £1m in cash - but the LTA may well have changed by then.

In the above scenario I don't know if I'd be able to increase the amount I could get whilst avoiding the extra tax, however one benefit I could get (vs. someone who paid less pension contributions) is that I could move my investments in to low risk funds (gilts/bonds/cash).

At retirement there is also the option to purchase annuities whilst using part of your fund for drawdown.  There are a lot of options out there.  In my opinion I think you can rest easy for the moment but look to review as and when your fund is approaching £1m

dunstonh

FIREDreamer said:

P1Fanatic said:

penners324 said:

There is no LTA. Government got rid of it a year ago

Wowsers how did I miss that. Guess I was worrying about nothing. That makes things a lot simpler. Thanks.

penners324 said:

To be more accurate the LTA was raised to infinity on April 5th 2023. On 5th April 2024 the LTA will be removed completely 

Labour are likely to win the next election and have said they are bringing it back, however they haven’t provided any details of how this would happen.

And they said that before:
a) they realised that the cap on tax free cash is remaining in place and it isn't being indexed.
b) before all the public sector worker unions and groups started moaning saying that they wanted carve outs. 

Are Labour really going to risk going to war with the unions/public sector for such a tiny amount of taxation revenue? - the feeling is no but who knows!

P1Fanatic

Mark_d said:

I'm in a similar situation to you @P1Fanatic.  I'm a couple of years younger than you with a marginally smaller pension pot, paying £30k in to pension each year.  Removal of the lifetime allowance was quite a relief when I first heard about it.

I understand that lifetime allowance applies at the time you crystallise your funds, and then only on the amount of funds you crystallise.  Suppose the LTA was £1m and you have £1m when you retire at 60.  Suppose you take £50k each year as cash but leave the remaining funds invested, the the LTA would only kick in after you've taken out £1m in cash - but the LTA may well have changed by then.

In the above scenario I don't know if I'd be able to increase the amount I could get whilst avoiding the extra tax, however one benefit I could get (vs. someone who paid less pension contributions) is that I could move my investments in to low risk funds (gilts/bonds/cash).

At retirement there is also the option to purchase annuities whilst using part of your fund for drawdown.  There are a lot of options out there.  In my opinion I think you can rest easy for the moment but look to review as and when your fund is approaching £1m

Indeed and hopefully it stays that way. I thought LTA tax was applied at the time of crystallisation ie calculated at the amount the pension pot is when you do they very first draw down or tax free withdrawal?

MallyGirl

P1Fanatic said:

Mark_d said:

I'm in a similar situation to you @P1Fanatic.  I'm a couple of years younger than you with a marginally smaller pension pot, paying £30k in to pension each year.  Removal of the lifetime allowance was quite a relief when I first heard about it.

I understand that lifetime allowance applies at the time you crystallise your funds, and then only on the amount of funds you crystallise.  Suppose the LTA was £1m and you have £1m when you retire at 60.  Suppose you take £50k each year as cash but leave the remaining funds invested, the the LTA would only kick in after you've taken out £1m in cash - but the LTA may well have changed by then.

In the above scenario I don't know if I'd be able to increase the amount I could get whilst avoiding the extra tax, however one benefit I could get (vs. someone who paid less pension contributions) is that I could move my investments in to low risk funds (gilts/bonds/cash).

At retirement there is also the option to purchase annuities whilst using part of your fund for drawdown.  There are a lot of options out there.  In my opinion I think you can rest easy for the moment but look to review as and when your fund is approaching £1m

Indeed and hopefully it stays that way. I thought LTA tax was applied at the time of crystallisation ie calculated at the amount the pension pot is when you do they very first draw down or tax free withdrawal?

It is - the quoted text is wrong.