LTA Query

Including Financial Independence and Retiring Early (FIRE)
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Joined: November 5th, 2016, 9:33 am

LTA Query

Postby Mark » January 11th, 2017, 6:57 pm

Quick question for all of you wise people.

I am 36 years of age and have a pension pot of approximately 300k at present. I've achieved this by contributing fairly large amounts to my SIPP in recent years. I have approximately 50k remaining tax relief this year using the three year carry forward rule. I will be subject to the full taper in future years so my tax relief will be limited to 10k, which is fully covered by my employer's contribution. I max out my ISA each year and have started investing in some VCTs in the last two years.

Assuming a 6% growth rate I could almost be over the LTA of 1m at 55 with no further contributions. My question is as follows - is it worthwhile for me to contribute an additional 50k to my SIPP before the end of this tax year? It's incredibly difficult to plan for something so far into the future when the rules are changing twice a year at present!



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Joined: November 8th, 2016, 1:37 pm

Re: LTA Query

Postby licoricel » January 12th, 2017, 9:58 am

Firstly, well done on getting so much in so far. You need to be aware, as you might expect, that with the constant rule changing on pensions there is the proposal (may already be enacted, don't know) to move the pension access age to 57 by 2028 I believe (10 yrs below state pension age) so it will certainly be a longer period for your investments to hopefully grow.

People here will have different opinions on what to do, no doubt, and I've seen them before on MF site. I'm in a similar position to you with 11 years to go, with a larger fund. I'm taking the approach of whacking more in for now, the reasons being: higher rate relief, protection from bankruptcy, not being allowed to touch it until at least 55, IHT benefits & ability to pass fund to kids etc, restricting income at 55+ so that even if 25% LTA charge is applied to fund I'm no worse off taking income vs HR relief now. Gov tinkering is always a concern of course, you would "hope" any further reduction in LTA will come with associated option to stick to current levels as has happened recently.

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Joined: January 15th, 2017, 9:20 am

Re: LTA Query

Postby JohnB » January 15th, 2017, 9:58 am

The lifetime allowance is due to be index-linked so it should pull away from £1m. But for something that had been so radically cut in the last few years, I'd not rely on that.

If you are being tapered you must be paying high end tax, so getting that full relief and then having it taken away when you go over the LTA probably evens out.

A lot depends on whether you expect to be a high earner long term. If not, take the tax breaks now, to bank your advantage.

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Joined: November 4th, 2016, 11:43 am

Re: LTA Query

Postby Shelford » January 16th, 2017, 2:03 pm

I'm in a similar position, but 3 years from taking a pension. You've done well a) to get to this position b) to have started to think about it. I missed taking Fixed protection at £1.25m a year or so ago which will have probably covered me. Tant pis!

One other consideration: if you are married, you should make the most of your partner's pension allowance of £40K (on the assumption they are earning less than £150K), and their ISA allowance of £20K from April. If not, some selective VCT investment (rule of thumb - not more than 10% of your overall portfolio as these are higher risk) make sense.

Good luck


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