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LTA with inflation Vs FP2016

Posted: September 2nd, 2020, 4:03 pm
by midgesgalore
I finally retired from my work to look after my wife in July 2015 and have never paid into nor drawn from a pension since the new tax year 6 April 2016. I should be entitled to claim fixed protection 2016 which I now intend to do - as I don't see a downside.
Does anyone know if the Lifetime allowance, LTA, (currently £1,073,000 at September 2020) + inflation exceeds the fixed protection 2016 (FP2016) of £1,250,000 then the higher amount would be used?

Looking at some basic sums as background I set up a spreadsheet with the Interest rate equation, Fv = Pv (1+r)^n
where for the LTA: Fv is the final value, Pv is the present value, r is the interest rate and n is the number of years.

I varied r at 1%, 2% and 3% - based on the average of 2% with +/-1 % variation.
I used the ONS website
to pitch my numbers as reasonably realistic, but who knows what inflation might do going on from here, I can only think it will rise coming out the COVID-19 pandemic.

2% inflation breaches FP2016 in 8 years (£1,257,190)
1% inflation breaches FP2016 in 16 years (£1,258,177)
3% inflation breaches FP2016 in 6 years (£1,281,218)

Looking at 3% inflation adjusted LTA it only takes 6 years to exceed the fixed protection limit or 8 years at 2%; both of which help me as I would not be 75 by then which is the time the pension must be crystallised if I left the pension untouched. (unlikely)

Even although I file for a FP2016 certificate with HMRC is any future test against the LTA the greater of FP2016 or the inflated £1,073,000 value?

BTW it is not easy to find this out in the Pension Tax Manual on the website
Stay safe


Re: LTA with inflation Vs FP2016

Posted: September 2nd, 2020, 4:48 pm
by bluedonkey
I'm sorry I don't have an answer. It's ridiculous that a pension presents so many complex riddles to solve. I have LTA 2014. The document states that the LTA is the greater of £1.5m or the standard LTA.

Re: LTA with inflation Vs FP2016

Posted: September 2nd, 2020, 5:29 pm
by parallellines
It's the greater of the two. ... /4/enacted

From a practical perspective most pension providers don't attempt to keep real time records of participants protection status and will just use the standard LTA unless you submit details of protection as part of the benefit crystallisation process.

Re: LTA with inflation Vs FP2016

Posted: September 2nd, 2020, 9:09 pm
by midgesgalore
Many thanks folks.