I am a long term lurker on here, and previously on TMF. I have been trying to get my head around pension rules over recent months, and would really appreciate some confirmation of (or correction to) my basic understanding from those of you with a better grasp of things.
- I am early 40's
- I have 3 pension pots:
- A frozen DB pot that currently would pay £21k p.a when I hit 65. This increases at the lower of 2% per year and inflation
A SIPP with c£100k of equities
A DC scheme (Euro denominated) currently worth c£150k
- My employment income will mean that I will have my annual allowance tapered to £10k.
- ISA allowances fully utilised each year.
My basic cals:
- The LTA has been coming down, but most recently was increased by CPI. Best case would seem to be further growth at CPI.
- I assume inflation averaging at 2% per year, so my DB 'value' increases by 2% per year, as does the LTA.
- I assume a total nominal return of 8% annually (bit of a guess based on minimal research) on my SIPP and DC scheme. Not sure if this is right, and I suppose I could reallocate to very low risk assets so that these grow more slowly... but then I have a 15+ year investment horizon).
- On the basis of the above, I would hit the LTA by the time I am in my mid/late 50's.
My initial conclusions
- I still don't feel like I understand all of the rules (protected LTA's, etc.)
- There seems little point in me continuing to contribute to pensions, as I have a small allowance each year now and will then get hit with more tax on the way out, too.
- I should probably ask my employer to stop pension contributions and instead convert what they would have put into my pension to salary. I think my employer would be open to this.
- We should use my wife's (who has used less than 10% of her LTA and is self-employed with a small income) pension allowance as and when it makes sense to in preference to me saving anything else.
- I can keep an eye on things and reconsider my position if the LTA moves in a different way, the rules change, or the returns on my DC/SIPP investments differ materially from expectations.
Any thoughts welcome on the above - appreciate it's only a partial picture, but am concerned there may be huge things I am completely missing in my understanding of the rules!
Thanks in advance,