Contributing despite LTA looming

[bowman]

So starting to think about an issue which will be relevant from the next tax year, would be interested to hear others' thoughts and checking off my numbers!

Assuming I have 20 years to before starting drawing down and I would expect whats already inside to grow in real terms to hit the inflation adjusted LTA allowance.

The question is as a higher rate tax payer should I continue to fund my SIPP- key will be the return on the marginal £ invested
-My employer will add in their NI saving, so for a 58 unit post tax cost (40% tax 2% NI) I will get 113.8 units invested
-I assume a real return of 3.5%, so in 20 years I have 113.8*1.035^20 = 225.8
-If I'm a higher rate tax payer on these marginal funds, my post tax return assuming I take it annually as income would be 225*0.75*0.6 = 101.6 (the 0.75 for the 25% LTA breach charge, 0.6 for higher rate tax
-If I'm a basic rate tax payer, 225*0.75*0.8 = 135.5

If instead I invest outside any tax wrappers (say my ISA allowance is maxed out annually + I have sufficient funds outside tax wrappers that I will use my annual CGT allowance
-If I assume of the 3.5% real growth, half is coming from dividends on which I am taxed at 32.5%, but dont pay capital gains tax as perhaps just buy and hold a global etf and never sell, my blended return is 1.75+1.75*0.675 = 2.9%
-I'm then left with 58*1.029^20 = 102.75

So assuming I have a non-zero percent chance of being able to withdraw the funds as a basic rate tax payer (or at least some of the funds are) I'm better off contributing into the pension despite already (assuming some growth) breaching the LTA?

N.B. Numbers above actually underestimate the benefit of the tax free growth for the additional pension contributions given the 1/ slightly optimistic cap gains assumption for marginal investment outside the pension 2/ the benefit of the extra 0.6% annual return of investments within the pension during drawdown

(Plus perhaps overoptimistic, but i wonder if there is a chance that some govt ends up removing the LTA in the future given annual contribution limits do the job going forward / silly level of complexity..)

[TUK020]

Perhaps a simpler way of looking at it:

Big caveat! assuming the rules stay the way they are at the moment....

Why not pump the max into your SIPP that is tax efficient now.
The moment you get to the LTA, crystalize it, which then means you cannot contribute any more. Thereafter direct all of your savings into ISA and taxed accounts.

When you stop earning, draw down the max you can to keep under the higher rate tax band, if you don't spend all of that, stuff the remainder into your ISA. If you need more, pull down from the taxed account first, then ISA.

[JohnB]

You can't crystalise until 55, or seek any of the protections, as they were transitional arrangements. That's why the LTA is so annoying, as it makes planning very hard. And if you get a bull market at withdrawl time, your £1m could be climbing faster than you can withdraw at BRT levels.

I think the salary sacrifice benefits are worth the possible tax. You could always make your SIPP have lots of bonds to slow its growth, and use the ISA for riskier and more lucrative equity.

But the future is too uncertain to say much.

[bowman]

Thanks both for looking at it-

Agreed on balance seems numbers suggest contributing. That said decent chance things change after the budget..