Question on crystallizing my pension
Comments
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If not, why not?
(i) I have no idea how to use futures, and
(ii) If they were to need me to get the timing right, I don't think I'd want to punt on that. (Though I did get the timing quite brilliantly right in late 1999.)
(iii) I assume that futures carry counterparty risk. That was what put me off trying derivatives in 2007/08 when it was all obviously about to go belly up. Not much use being right if the counterparty goes bust and can't pay up. I wasn't to know that the taxpayer would stump up for every sizeable bank bar Lehman Bros.Free the dunston one next time too.0 -
I always find this argument a bit unpersuasive. What if the crash is 25% but doesn't materialise until after a 30% rise? Even if deeper, there is no guarantee it will arrive when you need it, or if it does, that you can time it correctly. And if it doesn't work out then the outcome is somewhat worse than if you didn't gamble on it happening at all in the first place.
I agree looking historically this strategy would have more often than not resulted in a higher LTA charge
The fact that OP was considering keeping £200k in cash for a significant period suggested they were very concerned about downside risk.
Not at all. Including all investments I am over 70% in equities.0 -
I have to ask......is it worth tying up a £200k pension as cash for c.7 years earning next to nothing, just to avoid a relatively small LTA charge?.....wouldn't the inflation effect alone dwarf the very LTA charge you want to avoid?0
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My mistake. I was assuming there was some logical basis for your idea. Clearly not:DI always find this argument a bit unpersuasive. What if the crash is 25% but doesn't materialise until after a 30% rise? Even if deeper, there is no guarantee it will arrive when you need it, or if it does, that you can time it correctly. And if it doesn't work out then the outcome is somewhat worse than if you didn't gamble on it happening at all in the first place.
I agree looking historically this strategy would have more often than not resulted in a higher LTA charge
The fact that OP was considering keeping £200k in cash for a significant period suggested they were very concerned about downside risk.
Not at all. Including all investments I am over 70% in equities.0 -
I have to ask......is it worth tying up a £200k pension as cash for c.7 years earning next to nothing, just to avoid a relatively small LTA charge?.....wouldn't the inflation effect alone dwarf the very LTA charge you want to avoid?
Have to say, that's my thinking too. You're waiting for CPI to get 100% of nothing, rather than 45% of something? Isn't that the very definition of the tax tail wagging the dog?
I'd probably crystallise the £860K, and leave the £200K invested in something high risk/high return. If the £200K balloons out of all control then you'll get to keep 140K+
CPI plus 45% of any additional growth at age 75. If the £200K goes belly up then you can still take out £140K (+N years CPI).
And you never know, in the mean time the Govt might realise how barking mad the LTA is when combined with the AA, and remove it.0 -
I also have investments outside my pension (ISAs etc ) and my strategy involves holding some cash
I attempt to keep as much risk as possible outside the pension as any growth will be taxed on withdrawal
Of course the market could fall over the next few years but hoping for that to mitigate the LTA charge seems a pointless when I am carrying 70% equities
Thank you for the comments I only really intended this thread to involve answering the original enquiry regarding the initial BCE. I have spent time researching asset allocations and SWR and am happy with my choices.0 -
I always find this argument a bit unpersuasive. What if the crash is 25% but doesn't materialise until after a 30% rise?
What if markets simply stagnant or drift downwards. There's a far greater chance of a 10% downward movement in any 12 month period than a sudden crash. The likelihood of another round of QE is receding. Likewise actual company performance needs to catch up with investors expectations. Far too much focus on violent swings than real market volatility. Which is far more mundane yet has a significant impact, depending on ones own circumstances at the time.0 -
Oh, sure. But this is just another rehash of market timing arguments.Thrugelmir wrote: »What if markets simply stagnant or drift downwards. There's a far greater chance of a 10% downward movement in any 12 month period than a sudden crash.
Vanguard's Global All Cap index fund, a decent barometer of 'markets', has risen 10% in the past 9 months. Anyone waiting since Nov last year for a crash, dip, retreat, correction, or whatever to help them duck under the LTA, and where 10% would have done the trick then, will now be disappointed if the downturn isn't 20% or more. Each increase in markets is an additional headwind for those waiting for a crash.
And because markets generally drift upwards over the long term, the longer you wait, the lower the statistical chance that the hoped-for crash will have enough depth to allow the LTA penalty to be dodged.
Crystallising before or ideally at the LTA is best, if you can. If that's not possible -- exceeded the LTA before age 55, say -- then waiting for a market dip to let you dodge the LTA penalty is a gamble that might pay off, but the odds seem somewhat stacked against you overall.
The question then becomes, what else to do if/when this option starts to move out of reach?0 -
It seems so intuitively obvious that inflation would erode a cash holding that it could hardly be worth questioning. Yet in the Alice Through the Looking Glass world of life beyond the LTA, it actually turns out that this can be a winner. Weird, but true.Have to say, that's my thinking too. You're waiting for CPI to get 100% of nothing, rather than 45% of something? Isn't that the very definition of the tax tail wagging the dog?ETA: There were a bunch of wrong numbers here that I have removed. The gist of what they tried convey is that the value to the holder of the part of an uncrystallised pension that is above the LTA effectively increases (at a rate lower than inflation) as a result of the LTA penalty liability reducing by inflation.
To the extent that one wants a cash element in a portfolio then, this may be one of the least tax-inefficient ways to accomplish that.
Yup, that's an option too. Go for broke, on the basis that at this point you are gambling more with the government's money than your own. I suspect it is one that many folk will take. I would certainly consider it carefully myself too, if in that position.I'd probably crystallise the £860K, and leave the £200K invested in something high risk/high return. If the £200K balloons out of all control then you'll get to keep 140K+ CPI plus 45% of any additional growth at age 75. If the £200K goes belly up then you can still take out £140K (+N years CPI).
You are in danger of straying into the realms of fantasy. :-)And you never know, in the mean time the Govt might realise how barking mad the LTA is when combined with the AA, and remove it.0 -
Can you explain your maths here......with a quick reckon up I get much different figures to you.....how did you work out that £170k of the £200k is above the LTA?£170k of this £200k is above the LTA. It is worth £158k after LTA penalty if crystallised today.
EDIT....I see now....I think you are posting more in answer to haf63 from post#4, rather than the OP's original post, whereas my post#14 (and I believe Judwin's post#16) were in response to the OP's post#13.
The two cases are quite different.........0
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