Lifetime Allowance Statement

Goober11

I am (early) retiring in the next few weeks with a reasonable DB pension which I am accessing early. My employer has just sent me the Lifetime Allowance Statement in respect of the DB pension which is over £0.5m. Adding to that the other DC pensions built up over the years, I have about £65k over the LTA.

I must admit I have taken my eye off the ball a bit on this and am now concerned about what the implications are of exceeding the LTA. Does this mean I might have an unexpectedly high tax bill at some point?

I wasn't planning on drawing down any of the DC pots anytime soon but am now wondering if I need to take some action? Should I start drawing the pensions and using up ISA allowances ASAP? Although this years ISA will be used for my PCLS.

Any thoughts or suggestions on what I should do would be gratefully received.

Marcon

Goober11 said:

I am (early) retiring in the next few weeks with a reasonable DB pension which I am accessing early. My employer has just sent me the Lifetime Allowance Statement in respect of the DB pension which is over £0.5m. Adding to that the other DC pensions built up over the years, I have about £65k over the LTA.

I must admit I have taken my eye off the ball a bit on this and am now concerned about what the implications are of exceeding the LTA. Does this mean I might have an unexpectedly high tax bill at some point?

I wasn't planning on drawing down any of the DC pots anytime soon but am now wondering if I need to take some action? Should I start drawing the pensions and using up ISA allowances ASAP? Although this years ISA will be used for my PCLS.

Any thoughts or suggestions on what I should do would be gratefully received.

The LTA has been abolished. You could still be impacted by the Lump Sum Allowance - I wonder if that's what you have in mind? If so, you won't get a tax bill; it will just limit the amount of tax free cash you can take from all your pensions to a grand total of (currently) £268,275.

phlebas192

The LTA was abolished last year so you don't need to worry about it. The Lump Sum Allowance might be relevant - this is the amount you can tax as tax free Pension Commencement Lump Sums and is £268,275.

Goober11

The LTA has been abolished. You could still be impacted by the Lump Sum Allowance - I wonder if that's what you have in mind? If so, you won't get a tax bill; it will just limit the amount of tax free cash you can take from all your pensions to a grand total of (currently) £268,275.

Thanks for the speedy response and for putting my mind at ease. My lump sum is just under £70k which I am told is not a straight 25% TF sum like on DC schemes. So presumably that means I have an extra circa up to £200k of TF cash I could draw from the DC pots assuming the values allowed?

Albermarle

Goober11 said:

The LTA has been abolished. You could still be impacted by the Lump Sum Allowance - I wonder if that's what you have in mind? If so, you won't get a tax bill; it will just limit the amount of tax free cash you can take from all your pensions to a grand total of (currently) £268,275.

Thanks for the speedy response and for putting my mind at ease. My lump sum is just under £70k which I am told is not a straight 25% TF sum like on DC schemes. So presumably that means I have an extra circa up to £200k of TF cash I could draw from the DC pots assuming the values allowed?

That is correct. 

QrizB

Does OP need to request a Transitional Tax Free Certificate (or whatever they're called)? Or was that only necessary last tax year?

Marcon

QrizB said:

Does OP need to request a Transitional Tax Free Certificate (or whatever they're called)? Or was that only necessary last tax year?

No. They aren't eligible to apply for one. You have to have crystallised benefits between 6 April 2006 and 5 April 2024 and OP hasn't done that.

OP - don't worry, you aren't missing out on anything!

PropertyGuru_Wannabe

Goober11 said:

The LTA has been abolished. You could still be impacted by the Lump Sum Allowance - I wonder if that's what you have in mind? If so, you won't get a tax bill; it will just limit the amount of tax free cash you can take from all your pensions to a grand total of (currently) £268,275.

Thanks for the speedy response and for putting my mind at ease. My lump sum is just under £70k which I am told is not a straight 25% TF sum like on DC schemes. So presumably that means I have an extra circa up to £200k of TF cash I could draw from the DC pots assuming the values allowed?

You already stated that your lifetime allowance statement for your DB pension is £500,000 which is about right from your £70k lump sum.  The LSDBA is currently £1,073,100.  As far as I understand, you have £573,100 allowance remaining and therefore could take out £143,275 tax free lump sum but please confirm with a pension expert.

TheGreenFrog

Goober11 said:

The LTA has been abolished. You could still be impacted by the Lump Sum Allowance - I wonder if that's what you have in mind? If so, you won't get a tax bill; it will just limit the amount of tax free cash you can take from all your pensions to a grand total of (currently) £268,275.

Thanks for the speedy response and for putting my mind at ease. My lump sum is just under £70k which I am told is not a straight 25% TF sum like on DC schemes. So presumably that means I have an extra circa up to £200k of TF cash I could draw from the DC pots assuming the values allowed?

Do you have scheme protected tax-free cash with your DB scheme?

Marcon

PropertyGuru_Wannabe said:

Goober11 said:

The LTA has been abolished. You could still be impacted by the Lump Sum Allowance - I wonder if that's what you have in mind? If so, you won't get a tax bill; it will just limit the amount of tax free cash you can take from all your pensions to a grand total of (currently) £268,275.

Thanks for the speedy response and for putting my mind at ease. My lump sum is just under £70k which I am told is not a straight 25% TF sum like on DC schemes. So presumably that means I have an extra circa up to £200k of TF cash I could draw from the DC pots assuming the values allowed?

You already stated that your lifetime allowance statement for your DB pension is £500,000 which is about right from your £70k lump sum.  The LSDBA is currently £1,073,100.  As far as I understand, you have £573,100 allowance remaining and therefore could take out £143,275 tax free lump sum but please confirm with a pension expert.

Already answered above. The Lump Sum Death Benefit Allowance isn't the same thing as the LSA (the clue is in the name!), and it's the latter which OP asked about.

£268,275 - £70,000 = £198,275.00 

PropertyGuru_Wannabe

Thanks Marcon.  This is new to me and I love learning new things every day.  This would definitely benefit my position however have a question if I may.  If the OP did not opt to the take the DB lump sum and just chose to take the pension, would that have zero affect to the Lump Sum Allowance and therefore they could take the full  25% TFLS of £268,275 from the DC Pension?

Many thanks for this in advance.