hiriskpaul wrote:If you only received 20% tax relief on contributions, or end up paying more than 20% in drawdown, then you will be worse off.
For me, that one. In fact, both of these to a degree. Quite a lot of my pension contributions back before 'pension simplification' were within the sub-40% tax brackets that existed at the time.
hiriskpaul wrote:If you fully crystallise at or below the LTA, but then get hit on growth at age 75, ... paying 20% tax would reduce the amount to £60k. Which means you would be no worse off than if had drawn the excess £100k before age 75 and paid 40% income tax.
Same problem as above, though. I am likely to be above the 40% tax breakpoint right through retirement.
hiriskpaul wrote:Any amount in a SIPP is sheltered from IHT, which for some people might provide a good reason to exceed the LTA.
Yes. However, I have no children and so no direct requirement to provide anyone with an inheritance. (My nieces and nephews will be well pleased with anything that drops their way, but if anything does it will be by accident rather than by design!)
hiriskpaul wrote:In so far as it goes, I think pension simplification is a very good thing. Would you really want to be restricted to drawing down according to GAD tables? Or be forced to buy an annuity? I would like to see the system made even simpler, e.g. by abolishing the LTA completely and introducing a "Lifetime Tax Relief" limit instead.
The 'pension simplfication' of 2006 is what gave us the LTA, and at the time it was perhaps set at a reasonable level, but successive chancellors -- and
one in particular -- have turned it from reasonable to unreasonable. The GAD tables thing was silly and it is good that this has now gone, but that didn't go with 'pension simplification' of 2006 but rather in a vote-buying measure much later on. And even before this, as long as you had a healthy pension balance there was never any compulsion to buy an annuity (this is what the whole GAD thing was the alternative for).
I agree that the whole thing could be made a lot simpler still though, and a Lifetime Tax Relief wouldn't be a bad way to start (although perhaps impractical due to insufficient historical records!). Unfortunately, neither you nor I can do anything except react to the whims of whatever chancellor is in number 11 come budget time. In my case, 'react' meant giving up work and retiring some four or five years earlier than originally planned, as the only sensible way to avoid losses of around 25% of income (no company pension contributions) after taking out FP2016. The current system has within it some truly perverse incentives, unfortunately.
Thank you for taking the time to spell out the way the numbers work, anyway. Quite a few folk focus on the headline 55% rate without considering that it may not be that high for people who can keep all their affairs to below the 40% tax bracket in retirement.