Approaching LSA - pension still the most tax efficient way to invest?

Albermarle

OK I checked with Chat GTP as well, and it seems that it is an option, so I will retire hurt 😐

ukdw

zagfles said:

ukdw said:

Once you hit the LSA then I think any additional pension contributions and growth in those contributions is likely to be charged 40%,60% or 45% tax on drawdown, 

If you get 40% tax relief on the way in then fairly neutral on fund withdrawal from pensions for withdrawal up to £50k above the basic rate per year. Growth also likely to be taxed at the same rates on drawdown.

If you get 20% tax relief on the way in - then less favourable - if withdrawals charged at least 40%.

Comparing above to leaving funds tax unwrapped - I think it currently looks like the following:

Original funds no more tax to pay.
Capital Gains - assuming they are for a higher rate tax payer -  24%
Dividends - 33.75%
Cash interest - 42%
So other than cash interest it looks like a slightly lower rate of tax on the gains than if funds put in the pension and taken out again.
With more flexibility on accessing the original funds without triggering 60% or 45% tax rates.

Also these rates on gains would have some annual allowances and could gradually be mitigated by rolling funds into ISAs each year.

Also if one of the couple is still in basic rate after pension withdrawals then lower rates on the gains in their name could apply.

You're making the same mistake as EdSwippet. See my earlier post. 
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So you are saying at higher rate tax - £600 paid in, would become £1000.  

Assuming 7% growth, 4% gain, 3% dividend -  £70, which if withdrawn would be £70*.6 = £42
Whereas if left outside - growth would be £42 - but you would then have to pay tax of 24% or 33.75% on that - 

looks like you are correct- so I guess the main issue with paying extra into the pension is paying 40% on the way out from 20% on the way in, and also the loss of flexibility and risk of getting pushed into the 60% band.

thanks for the clarification.

RogerPensionGuy

artyboy said:

At the very least I would still be paying in enough to take full advantage of whatever employer contribution matching is available to you.

Mrs Arty is way over the old LTA now - for her it's 47% on the way in and 40% on the way out, and has just reduced her contributions to just get the maximum matching. 

Without getting too political, there has been so much meddling with pension laws over the past decade that they are now IMO a fattened cow to be milked/slaughtered at will, so the upside would have to be very substantial before I ever paid into one again. Easy for me to say though...


Also, if you do have a lot of unwrapped assets right now, have you looked at gilts? Or premium bonds?

I've just been re~reading this thread and its got some great information.

I picked a reply on this post because I think it's a very important post, pensions and property wealth value has just become massive and I see these items as low hanging fruit for various taxes and the mansion tax or the old pension LTA 25% surcharge tax and then marginal tax applied after are clear examples that these low hanging fruit trees are easy pickings. 

A few points I'll l mention that come to mind reading this thread below.

The LSA rules can change, up down or be tapered, the LTA could get reinvented, NI applied to pension withdrawals.

For information, I emptied out my full TFLS of 268K just a while ago, the platform asked if I wanted all my funds in the SIPP to move in to crystallised funds and then I said no, lesve uncrystallised funds in their own pot as if the LSA did ever increase I would rather have the possibility of removing more cash tax free, platform said yeah, that's a sensible idea.

The OP appears to thankfully have only 1st world problems/choices which is nice and trying to optimise potential net income is good planning, we can all see how the NHS is far from purfect and it looks very unlikely it can be fixed in the next few decades, so I just think if I'm alive at say 80 or 85ish and need medical procedures and don't want to wait/wish for NHS treatment, I want the ability to pay for it. Maybe the rules could allow DC pension pots to pay for private medical needs and not be taxed as it leaves pension, these funds will be getting taxed immediately the treatment is carried out and would take pressure off the NHS.

Reference optimisation of financial position and possibilities I see as important, people plan, invest & save over many decades and spending a reasonable amount and effort to try achieving a good position is completely fine.

Reference the IHT games in families, I've seen people handing on/passing wealth down in their 50s & 60s and when the older folk could do with a bit of goodwill cash flowback or general help in the later years, it can be problematic, big house, 3 cars, 4 holidays or whatever. So gifting needs to long though about in my little head.

Last point was from another post on this thread, many people who long term, planned, worked, saved, invested and filled pension, ISAs and the like can indeed find it strange or difficult switching from accumulation to spending, treating and improving living stuff, I'm a bit like this and maybe it's not perfect, but I feel very happy I can and do what I like and if I need medical attention, I can most likely fund it I suspect, I'm not going to read the book "How to Die With Zero" I'm happy to leave leftovers and any estate will pay relevant taxes and be distributed as I wished.