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    • Alibert
    • By Alibert 11th Mar 18, 9:53 PM
    • 10Posts
    • 1Thanks
    exceeded LTA - next steps
    • #1
    • 11th Mar 18, 9:53 PM
    exceeded LTA - next steps 11th Mar 18 at 9:53 PM
    I am approaching 55 and have exceeded my LTA.
    I'm still working, not intending to retire just yet.

    After a lot of reading around, my conclusion is that, having exceed the LTA, the bet course of action for me when I reach 55 is to crystalise the whole pension, taking the 25% tax-free amount and and moving the rest (after paying 25% in LTA tax) into drawdown,

    Then going forward to draw down any/all growth from the draw down element, to avoid triggering a second LTA charge in the future... when I am 75

    Thoughts on this ? Does it make sense?
Page 2
    • The_Doc
    • By The_Doc 12th Mar 18, 12:19 PM
    • 80 Posts
    • 58 Thanks
    I am assuming you don't have any DB schemes. There would be a few more permutations if there were.
    • Triumph13
    • By Triumph13 12th Mar 18, 12:28 PM
    • 1,180 Posts
    • 1,463 Thanks
    Exactly .
    Which is a powerful incentive to crystalise
    Originally posted by Alibert
    Pretty well the only reasons NOT to crystallise in your position would be a) because you hoped the LTA might be abolished / raised significantly above the expected level of investment growth, or b) to engage in market timing by hoping for a well timed dip in investment values. Neither of those could be deemed a risk-free strategy!
    • Alibert
    • By Alibert 12th Mar 18, 12:31 PM
    • 10 Posts
    • 1 Thanks
    I have more than one DC pot .. which complicates the actions I need to take, but I don't think affects the principle. One old DC pot from yonks ago has small amount o invested in a with profits fund , I may need to delay crystallizing that, but it's not material to the total amount
    • goRt
    • By goRt 13th Mar 18, 9:45 AM
    • 253 Posts
    • 150 Thanks
    The LTA will increase each year in line with inflation. So, in April, it will be rising to 1,030,000. You can expect further increases.

    How will you take an income in retirement? If you are looking to move to drawdown, and you are close to the LTA, then crystallising all of your pension in one go might not be best.

    If the LTA is 1,200,000 when you start to draw a pension, and you draw at a rate of 60,000 per year, then in the first year, you will use 5% of your LTA, and have 95% remaining.

    Next year, let's say inflation is 5%, and the LTA goes up to 1,260,000. If you took another 60,000 this year, then you would only use 4.76 of your LTA, and have 90.24% remaining, and so on.

    My general thought is that if you are massively over the LTA, then there are no huge advantages to delaying crystallisation, and you can move the tax-free cash elsewhere and use that to derive some tax-efficient income rather than solely relying on taxable pension income.

    However, if you are only marginally over the LTA, it may be more tax-efficient to only draw what you need to from your pension, and delay the LTA charge as long as possible, and have the potential to never need to pay it.

    jkwer521 is correct in his above post. You will only get tax-free cash of 25% of the LTA, not 25% of your whole pot. (Unless your pension has protected tax-free cash).
    Originally posted by HappyHarry
    I'm sorry, but this only just about works if you assume ZERO growth in the SIPP i.e. the 60k depletes the fund to age 75.

    In the real world assume that fund growth matches your estimate of 5% CPI (yes that's what the LTA is indexed by), that would mean that you'd used up n*5% of the LTA (where n is the number of years) so from 60-75 ~ 65% of the LTA gone (OK I accept your point of the %age dropping as the LTA increases, but that ignores taking more than 60k per year).
    Then at age 75 you have a fund of 1.2m and ~35% of your LTA left. F=Your fund is then tested against the current LTA (BCE7) and a tax liability becomes due.
    **I think** there's also the loss of any LTA so there's no more 25% tax-free withdrawal.

    The perceived wisdom is, when close to LTA, crystallise fully ASAP - there's no indication that LTA will be removed (close means ~50% of LTA, depending on closeness to 75)
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