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  • FIRST POST
    • cautious investor
    • By cautious investor 6th Mar 18, 6:33 PM
    • 9Posts
    • 1Thanks
    cautious investor
    LTA taxed at 55% taken as lump sum, 25% as income
    • #1
    • 6th Mar 18, 6:33 PM
    LTA taxed at 55% taken as lump sum, 25% as income 6th Mar 18 at 6:33 PM
    Please forgive my blinding stupidity ....I'm just about grasping tapering, Aa's cetvs and SIPPs..... Is this a left brain/right brain thing?

    Anyway; i'm 56 next birthday, ( still feel 18, so how did this happen ?)
    DB pension ( from company pot with a big deficit) is approx 39K now or 51K at age 60.
    No protection. ( CETV?, last dec offered at 1.25M, I'm hoping its a smidge higher this year when the DB scheme closes)

    I'm considering a transfer, taking 257K tax-free and dinvesting roughly 1m for 5 years in a SIPP with someone experienced like St James Place.

    What I don't understand is the "LTA taxed at 55% taken as lump sum, 25% as income".

    Will my 257K really be tax free if I request it this May ?
    What is the difference between income and lump sum ?

    Please forgive me if this is a dumb question!
Page 1
    • Brynsam
    • By Brynsam 6th Mar 18, 6:54 PM
    • 922 Posts
    • 604 Thanks
    Brynsam
    • #2
    • 6th Mar 18, 6:54 PM
    • #2
    • 6th Mar 18, 6:54 PM
    No blinding stupidity involved - just wildly complex legislation!

    If you are thinking of transferring at some point, get your relationship with a financial adviser off the ground now. You will be required to show that you have received (but not necessarily followed) advice from a suitably qualified and authorised person before the transfer can proceed. Transfer values, once issued, are only guaranteed for 3 months. Your adviser will have had to go through a huge amount of work on your behalf before the relevant advice can be given - and getting through it all within the allowed time frame is one heck of a push.

    Miss a key deadline and your transfer won't be able to proceed and you will have to start again with a revised transfer value. You are only entitled to one free TV in any 12 month period and may or may not be allowed to pay (around 500+VAT is typical) for a second TV within the 12 months. Transfer values can go up or down, depending on market factors and how recently the trustees have reviewed the basis of the TVs they offer.

    See how well - and quickly - your adviser can explain all you want to know. That way you'll have information based on all the facts of your own situation.
    • GunJack
    • By GunJack 6th Mar 18, 7:01 PM
    • 10,108 Posts
    • 7,573 Thanks
    GunJack
    • #3
    • 6th Mar 18, 7:01 PM
    • #3
    • 6th Mar 18, 7:01 PM
    St James' Place usually get a slating on here for being neither Independent or value-for-money.....
    ......Gettin' There, Wherever There is......
    • Aegis
    • By Aegis 6th Mar 18, 7:17 PM
    • 4,889 Posts
    • 3,098 Thanks
    Aegis
    • #4
    • 6th Mar 18, 7:17 PM
    • #4
    • 6th Mar 18, 7:17 PM
    St James' Place usually get a slating on here for being neither Independent or value-for-money.....
    Originally posted by GunJack
    And for imposing exit fees on things like pensions. Decide to change your mind in year 1 because you find out they're not as good as they say they are? 6% exit penalty.
    I am an Independent Financial Adviser
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
    • Daniel54
    • By Daniel54 6th Mar 18, 7:51 PM
    • 602 Posts
    • 706 Thanks
    Daniel54
    • #5
    • 6th Mar 18, 7:51 PM
    • #5
    • 6th Mar 18, 7:51 PM
    Amounts above the LTA attract a charge of 25% on crystallisation.You then pay income tax at your marginal rate if you drawdown from the remainder as income.If you take the excess as a lump sum,the rules assume your tax rate is 40% and the charge is therefore 25% plus 40% of the remaining 75% which equals 55% in total.
    • dmelife
    • By dmelife 6th Mar 18, 7:53 PM
    • 38 Posts
    • 49 Thanks
    dmelife
    • #6
    • 6th Mar 18, 7:53 PM
    • #6
    • 6th Mar 18, 7:53 PM
    If you take the excess over the LTA as a lump sum it is taxed at 55%. So let!!!8217;s say your pot at the point of crystallisation is 1.25m and for simplicity the LTA is 1m then you would get 250k tax free, plus 112,500 as a lump sum after 55% tax, (no further tax to pay) leaving 750k invested for drawdown. This would be taxed at your marginal rate.
    If you took the excess as income, you would pay 62,500 in tax on the 250k excess which would leave 750k + 187,500 in drawdown, taxed as income.
    • EdSwippet
    • By EdSwippet 6th Mar 18, 11:59 PM
    • 705 Posts
    • 660 Thanks
    EdSwippet
    • #7
    • 6th Mar 18, 11:59 PM
    • #7
    • 6th Mar 18, 11:59 PM
    No protection. CETV?, last dec offered at 1.25M, ... I'm considering a transfer, taking 257K tax-free and investing roughly 1m for 5 years in a SIPP ...
    Originally posted by cautious investor
    Just in case it is not clear from the previous replies, the LTA is a limit on the tax free lump sum. From a 1.25m pot the maximum you can now take as a tax-free lump sum is 250k if you hold no LTA protections -- that is, 25% of your LTA. To access this you would have to crystallise 1m of your pension, but you can put the 750k that remains after taking the tax-free lump sum into deferred drawdown, and you would only pay tax as and when you take withdrawals from that.

    This leaves you 250k uncrystallised. Because this is above your LTA you cannot take further tax-free lump sums from it. Anything you do crystallise from it is either a) first taxed at 25% LTA penalty rate, and then your normal income tax on the remaining 75% (so 25% + 20% or 40% of 75%, giving 40% or 55%), or b) taxed at a flat 55% rate. The first of these two options is better if you are a basic rate taxpayer, otherwise they are equivalent.

    Will my 257K really be tax free if I request it this May ?
    Originally posted by cautious investor
    So... not quite. As noted above, without any LTA protection you can now realise at most 250k tax-free from a pension.

    And yes, it's a complexity minefield.
    • dunstonh
    • By dunstonh 7th Mar 18, 1:04 AM
    • 92,580 Posts
    • 59,889 Thanks
    dunstonh
    • #8
    • 7th Mar 18, 1:04 AM
    • #8
    • 7th Mar 18, 1:04 AM
    DB pension ( from company pot with a big deficit) is approx 39K now or 51K at age 60.
    A big deficit is not necessarily a problem. The current accountancy standards they have enlarges deficits on paper.

    I'm considering a transfer, taking 257K tax-free and dinvesting roughly 1m for 5 years in a SIPP with someone experienced like St James Place.
    The most expensive distribution channel in the country and a tied sales company (own product). Why would you want to do that?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • cautious investor
    • By cautious investor 7th Mar 18, 9:48 AM
    • 9 Posts
    • 1 Thanks
    cautious investor
    • #9
    • 7th Mar 18, 9:48 AM
    • #9
    • 7th Mar 18, 9:48 AM
    Thank you (everyone) for the helpful replies.
    What a great resource this forum is.

    (i) I understand the SJP fee structure (which isn't that different to alternatives, maybe 0.4% higher ?)
    (ii) Hundreds of colleagues used them and over the last 5 years have experienced phenomenal growths (typically 13% per year !)
    (iii) There are no exit fees for my employee group (specially negotiated deal)
    (iv) Edswippet, I mentioned 257 tax-free since lt is uplifted now, ( LTA now 1.03 with inflation) so the 25% tax-free is apparently 257K
    (v) Brynsam, thanks for the warnings ... certainly useful. I think we are lucky, my employer unusually, doesnt charge for cetv's and you can ask as many times as you wish.
    Last edited by cautious investor; 07-03-2018 at 9:54 AM.
    • cautious investor
    • By cautious investor 7th Mar 18, 9:49 AM
    • 9 Posts
    • 1 Thanks
    cautious investor
    DunstonH; Why SJP ? Simply because my older colleagues all went with them and have been very happy.

    I have to say , I'm still deliberating.... Not committed till April !
    • Aegis
    • By Aegis 7th Mar 18, 11:18 AM
    • 4,889 Posts
    • 3,098 Thanks
    Aegis
    DunstonH; Why SJP ? Simply because my older colleagues all went with them and have been very happy.

    I have to say , I'm still deliberating.... Not committed till April !
    Originally posted by cautious investor
    Just remember to shop around for better offers. SJP have slick marketing, but that's a veneer over a very limited product range and a salesforce that is still essentially commission-driven. It's rare that I can't entice a client away from SJP once I point out the fundamental differences between their restricted service and a proper independent service.

    If you still go with them afterwards, then you'll have lost nothing but a bit of time, but you may well find yourself speaking to much better advisers with much better product ranges, which could make you and your family considerably better off in the long run.
    I am an Independent Financial Adviser
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
    • atush
    • By atush 7th Mar 18, 11:20 AM
    • 16,690 Posts
    • 10,398 Thanks
    atush
    I understand the SJP fee structure (which isn't that different to alternatives, maybe 0.4% higher ?)
    No i dont think you do, as you have missed the whole 6% exit fee which no one else has. And I suspect that guarantee isnt made of much. It should be a HUGE red flag that they charge 6% to anyoneeveren if they wont for you.

    Would you jump over a cliff if your friends at work did?

    and i'd be surprised if they were just 0.4% higher. They are much higher from what I have seen.

    Then, they dont do whole of market- they will only sell you hteir own funds. And wont sell you the inexpensive options most of us use (such as multi asset funds like Vanguard, or cheap global trackers)
    • dunstonh
    • By dunstonh 7th Mar 18, 11:37 AM
    • 92,580 Posts
    • 59,889 Thanks
    dunstonh
    (i) I understand the SJP fee structure (which isn't that different to alternatives, maybe 0.4% higher ?)
    We were recently competing against SJP for a 500k investment. Our initial charge was 2500. SJP was 25,000. As usual, SJP's charges lacked transparency and were hidden in the fund charges as if it was still 2012. Their annual charges were about 0.7% a year more all in and that was using their own in-house funds (as they have to) vs us using whole of market funds. If we feel a fund needs changing as its going off the boil or we are in part of the economic cycle that suits a different invesmtent style, an IFA can change it. SJP cant as you are stuck with their internal fund range.

    So, are you sure you understand the differences? Even if you do, why do you want to use such an expensive distribution channel with such heavy restrictions? We know that SJP can brainwash people with their slick marketing but this should really be a no-brainer.

    (ii) Hundreds of colleagues used them and over the last 5 years have experienced phenomenal growths (typically 13% per year !)
    And all of them paying over the odds and no-one stays with SJP once they realise the alternatives. The last 5 years have been very good for all investments. Just think how much more they would have got with a portfolio using whole of market funds at less cost.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • NoMore
    • By NoMore 7th Mar 18, 12:05 PM
    • 175 Posts
    • 146 Thanks
    NoMore
    From your user name Cautious Invester - why are you wanting to transfer a DB pension in the first place? Going from zero risk to even low risk is not really cautious ?
    • Credit-Crunched
    • By Credit-Crunched 7th Mar 18, 1:36 PM
    • 2,097 Posts
    • 4,126 Thanks
    Credit-Crunched
    No i dont think you do, as you have missed the whole 6% exit fee which no one else has. And I suspect that guarantee isnt made of much. It should be a HUGE red flag that they charge 6% to anyoneeveren if they wont for you.

    Would you jump over a cliff if your friends at work did?

    and i'd be surprised if they were just 0.4% higher. They are much higher from what I have seen.

    Then, they dont do whole of market- they will only sell you hteir own funds. And wont sell you the inexpensive options most of us use (such as multi asset funds like Vanguard, or cheap global trackers)
    Originally posted by atush
    My parents have an SJP pension and are very happy with it, the adviser was very flexible on the terms and reduced the early exit to 1 year, and the TOTAL charges including his 0.5% were 1.3% per annum. This seemed comparable to the IFA quotes they had who were charging 1% per annum, plus fund AMC plus platform costs.

    So, I think if you are able to drive down the initials, then they are a good bet. They have bi annual reviews, birthday card, christmas card, and answers calls every time. Their previous IFA met them once, signed them up and then never returned a call or met them each year.

    I suppose with all jobs, good and bad ones.
    • dunstonh
    • By dunstonh 7th Mar 18, 2:06 PM
    • 92,580 Posts
    • 59,889 Thanks
    dunstonh
    My parents have an SJP pension and are very happy with it, the adviser was very flexible on the terms and reduced the early exit to 1 year, and the TOTAL charges including his 0.5% were 1.3% per annum. This seemed comparable to the IFA quotes they had who were charging 1% per annum, plus fund AMC plus platform costs.
    AMC is old hat. No-one works on AMC nowdays. OCF has been the standard for some years. So, when you see charges mentioned on this board or via an IFA, they are referring to the OCF. Not the lower AMC.

    e.g. SJP Multi-Asset L is 1.36% AMC. However, the OCF is 1.69%.
    L&G multi-index 4 is 0.24% is OCF. They are not even bothering with the AMC any more.

    Those two funds are the same risk but the L&G would need a platform. So add in around 0.3% and that makes it 0.54%. Add on 0.5% for IFA if you want ongoing and that makes it 0.94%. Vs the 1.69% on a like for like basis with SJP.

    And performance wise, L&G has returned 34.12% since launch in Sept 13 vs SJP doing 12.57% in the same period. That was not cherry picking as I could find very many more funds that did better than L&G. I just picked a simple whole of market mainstream alternative.


    This seemed comparable to the IFA quotes they had who were charging 1% per annum, plus fund AMC plus platform costs.
    If its a small pot, then 1% is typical. If its a larger pot, then 0.5% is the most dominant figure.

    So, I think if you are able to drive down the initials, then they are a good bet. They have bi annual reviews, birthday card, christmas card, and answers calls every time. Their previous IFA met them once, signed them up and then never returned a call or met them each year.
    If you employ an IFA on transactional basis then they will operate on a transactional basis. You are not going to get ongoing reviews for free. However, you get lower costs instead. I, like most IFAs out there, have done plenty of transactional investments/pensions. More than ongoing servicing cases as it happens. One shot transactions are more than suitable for many people. They can get a pension at total annual costs of around 0.3% and dont need reviews in it.

    With IFAs you get the choice of transactional or ongoing servicing. With SJP you do not. it is unfair to compare a transactional service that is not being paid for with ongoing servicing that is being paid for.

    SJP are very slick on the marketing. They can afford to be with their charges. Some years back, I did a pension transfer from SJP that still holds the record for me as the effect of charges over the term was over 300,000 more than what I arranged. So, if you think birthday cards and Christmas cards are worth 300k because of charges then that is fine. It's a choice. I personally think that is bit expensive for a bit of glossy.
    Last edited by dunstonh; 07-03-2018 at 2:12 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Credit-Crunched
    • By Credit-Crunched 7th Mar 18, 4:58 PM
    • 2,097 Posts
    • 4,126 Thanks
    Credit-Crunched
    AMC is old hat. No-one works on AMC nowdays. OCF has been the standard for some years. So, when you see charges mentioned on this board or via an IFA, they are referring to the OCF. Not the lower AMC.

    e.g. SJP Multi-Asset L is 1.36% AMC. However, the OCF is 1.69%.
    L&G multi-index 4 is 0.24% is OCF. They are not even bothering with the AMC any more.

    Those two funds are the same risk but the L&G would need a platform. So add in around 0.3% and that makes it 0.54%. Add on 0.5% for IFA if you want ongoing and that makes it 0.94%. Vs the 1.69% on a like for like basis with SJP.

    And performance wise, L&G has returned 34.12% since launch in Sept 13 vs SJP doing 12.57% in the same period. That was not cherry picking as I could find very many more funds that did better than L&G. I just picked a simple whole of market mainstream alternative.




    If its a small pot, then 1% is typical. If its a larger pot, then 0.5% is the most dominant figure.



    If you employ an IFA on transactional basis then they will operate on a transactional basis. You are not going to get ongoing reviews for free. However, you get lower costs instead. I, like most IFAs out there, have done plenty of transactional investments/pensions. More than ongoing servicing cases as it happens. One shot transactions are more than suitable for many people. They can get a pension at total annual costs of around 0.3% and dont need reviews in it.

    With IFAs you get the choice of transactional or ongoing servicing. With SJP you do not. it is unfair to compare a transactional service that is not being paid for with ongoing servicing that is being paid for.

    SJP are very slick on the marketing. They can afford to be with their charges. Some years back, I did a pension transfer from SJP that still holds the record for me as the effect of charges over the term was over 300,000 more than what I arranged. So, if you think birthday cards and Christmas cards are worth 300k because of charges then that is fine. It's a choice. I personally think that is bit expensive for a bit of glossy.
    Originally posted by dunstonh
    Thanks for the discussion and heads up, I have had a slight panic then so Ive had my parents email over their forms and it definitely shows an OCF of 0.9% made up of 05% for advice and 0.4% for the products (the 0.4% is an average of the underlying funds AXA Framlington at 0.46%, Schroder Managed at 0.29%, Global Equity at 0.31% etc) this is together with an early withdrawal charge of 1% in the first year and 0% thereafter.

    So from what I can see, the advisers have flexibility?

    They are in a 'Managed Funds' portfolio and has returned 64.2% over 5 years and 25.6% over 3 years, so they are happy.

    P.S Both pots are 6 figure pots
    • happyandcontented
    • By happyandcontented 7th Mar 18, 5:22 PM
    • 1,088 Posts
    • 2,128 Thanks
    happyandcontented
    So, of the bigger well-known firms out there who would be a good bet for a DB transfer with ongoing management?

    We are looking at Hargreaves Landsdown.
    • bostonerimus
    • By bostonerimus 7th Mar 18, 11:23 PM
    • 1,818 Posts
    • 1,167 Thanks
    bostonerimus
    Platform and management fees are going to come straight out of your retirement income. So if you are paying 1% in fees and are withdrawing 4% annually that ends up being a pretty high percentage of your income.
    Misanthrope in search of similar for mutual loathing
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